Girls and gents, thanks for standing by. Welcome to Enerpac Device Group’s Second Quarter Earnings Convention Name. As a reminder, this convention is being recorded at present, March 22, 2023.

It’s now my pleasure to show the convention over to Bobbi Belstner, Senior Director of Investor Relations and Technique. Please go forward, Mr. Belstner.

Bobbi Belstner — Senior Director, Investor Relations and Technique

Thanks, Operator. Good morning and thanks for becoming a member of us for Enerpac Device Group’s second quarter fiscal ’23 earnings convention name. On the decision at present, to current the Firm’s outcomes are Paul Sternlieb, President and Chief Government Officer; and Tony Colucci, Chief Monetary Officer. Additionally with us is Barb Bolens, Chief Technique Officer.

Our earnings launch and slide presentation for at present’s name can be found on our web site at enerpactoolgroup.com within the Buyers part. We’re additionally recording this name and we’ll archive it on our web site. Throughout at present’s name, we are going to reference non-GAAP measures reminiscent of adjusted revenue margins and adjusted earnings. Yow will discover a reconciliation of GAAP to non-GAAP measures within the schedules to this morning’s launch. We’d additionally prefer to remind you that we’ll be making statements in at present’s name and presentation that aren’t historic details and are thought of forward-looking statements. We’re making these statements pursuant to the protected harbor provisions of federal securities legal guidelines. Please see our SEC filings for dangers and different components that will trigger precise outcomes to vary materially from forecasts, anticipated outcomes, or different forward-looking statements.

Now I’ll flip the decision over to Paul.

Paul Sternlieb — President and Chief Government Officer

Thanks, Bobbi and good morning, everybody. Thanks for becoming a member of our Q2 earnings name this morning. I’m pleased to cowl our fiscal 2023 second quarter outcomes with you at present. I’d like to begin by offering some extra colour on our ASCEND transformation program and the superb progress that we’re making on a number of of the targeted progress pillars from our strategic plan that we laid out at our Investor Day in November.

Shifting to Slide 3, as we reached the one yr anniversary of the launch of our ASCEND transformation program. I’m extraordinarily happy with the progress made so far and the outcomes might be seen in our sturdy gross revenue margins and adjusted EBITDA margins within the second quarter, that are each the brand new file highs, because the launch of Enerpac Device Group in 2019. ASCEND is concentrated on driving natural progress, operational excellence enchancment and higher effectivity and productiveness in SG&A to boost shareholder worth. This program contains many a whole bunch of initiatives throughout all features and areas of the enterprise and is led by almost 100 work stream leads and initiative homeowners throughout the corporate.

Based mostly on the work and accomplishments at present, we’re growing our anticipated adjusted EBITDA advantage of this system from the unique plan of $40 million to $50 million to a brand new goal of $50 million to $60 million on account of extra initiatives added to the undertaking funnel over the previous yr and initiatives executing at a better success fee. We now anticipate $32 million to $38 million of adjusted EBITDA profit from ASCEND within the present fiscal yr, up from the earlier estimate of $12 million to $18 million. That is pushed by $15 million of EBITDA from ASCEND initiatives included in our unique fiscal 2023 steerage which have now matured by our ASCEND pipeline and we’ll be attributable to ASCEND however that aren’t incremental to our steerage, in addition to the acceleration of a number of key ASCEND initiatives. We proceed to anticipate to realize the up to date EBITDA run fee as we exit fiscal 2024 and anticipate it will likely be constructed into our fiscal 2025 full yr steerage.

Earlier than we transfer on to an replace on our progress technique, I’d like to focus on just a few examples of the accelerated progress that we proceed to make on our ASCEND initiatives. Within the space of business progress, one space we’re engaged on is, constructing new advertising and marketing and engineering capabilities throughout the rail vertical. We’re focusing on key buyer accounts by each distributors and direct channels and our engineering group has designed a brand new rail stressor particularly for the European market. Because of this, we not too long ago secured a significant contract win for our rail stressor package within the U.Okay. for about $1 million.

Because it pertains to infrastructure, within the U.S., we’re targeted on constructing relationships with massive bridge building finish customers each immediately and thru our distributors. These focusing on efforts have resulted in a number of wins for our core merchandise, notably pumps and cylinders and it has created a robust funnel of future alternatives. As well as, we not too long ago gained a heavy lifting know-how or HLT alternative for about $1 million in that vertical. We’re very excited in regards to the progress made and our future alternatives inside these verticals. It’s nonetheless early days as we begin to execute on our vertical market progress initiatives, however we’re already seeing promising progress and influence.

Now shifting on to footprint rationalization, I’m happy that we’ve began to make headway on this initiative. As we knew, it will be one of many longer tail objects popping out of ASCEND. As a part of the method, we reviewed the fee construction and manufacturing location of all merchandise and elements we produce throughout the globe. And presently, we’ve recognized plan and introduced the consolidation of one in all our services within the European area and we’ve created an in depth implementation plan to make sure a really clean transition. We anticipate this to drive an annual profit of roughly $1 million and we’re endeavor additional evaluation on our general footprint to judge extra alternatives.

We’re additionally leveraging lean instruments and strategies in all our factories and operations processes to constantly drive effectivity enhancements. Once more, these are just some examples of the progress that we proceed to make on our initiatives throughout the ASCEND program. Of the up to date $32 million to $38 million of adjusted EBITDA profit that we anticipate in fiscal ’23 associated to ASCEND, we skilled a profit of roughly $15 million within the second quarter and roughly $21 million year-to-date.

With reference to SG&A, if we exclude the adjusted prices and the rise in AR reserve within the prior yr, we noticed 320 foundation factors of enchancment in year-over-year SG&A within the quarter — within the second quarter on account of the ASCEND actions taken so far. As a reminder, ASCEND is rather more than a restructuring program. There’s a excessive diploma of focus, self-discipline, and rigor related not solely with our value construction, but in addition natural progress and operational effectivity and productiveness as demonstrated within the examples coated on the progress made within the quarter.

Shifting on to Slide 5, I’m excited to share a number of the progress we’ve got made on our strategic plan progress initiatives. As a reminder, at our Investor Day in November final yr, we laid out our focus progress plan round 4 key pillars, together with growth and focused vertical markets, particularly infrastructure, wind, rail and industrial MRO, digital transformation, customer-driven innovation and growth within the Asia-Pacific area. Final quarter, we highlighted innovation.

On this quarter, I needed to share a number of the progress that we’re making inside our targeted verticals, particularly, wind and in addition inside our enhanced digital advertising and marketing program. I’m very inspired by the progress we’ve got made in a brief time period in each of those progress areas. Because it pertains to the wind vertical, international progress in wind vitality takes on many varieties, from constructing out native manufacturing vegetation to new wind web site allowing to superior monitoring and Enerpac has constructed a devoted best-in-class international wind crew to take care of all aspects and areas, the place wind is rising and the place we’re seeing outcomes.

And actually, our crew has just a few current wins together with an order with expedited expectations from a worldwide offshore wind buyer, offering a tailor-made and repeatable answer for the rising offshore market. The overall influence of those wins is roughly $1 million so far and we stay very enthusiastic about the way forward for this progress vertical.

Shifting on to our digital transformation, particularly on this case, our digital advertising and marketing efforts, we’ve been arduous at work, constructing out this perform with a bigger expanded digital crew. In actual fact, we’ve already employed a number of crucial roles to assist speed up our digital advertising and marketing efforts, and we’ve begun actively focusing on potential consumers, looking out on-line for associated manufacturers and merchandise with product itemizing advertisements, search advertisements, and outbound advertisements. We’re captivated with constructing a white-glove on-line expertise for our prospects and we’ll proceed to optimize our web sites in that pursuit.

Just lately, we’ve optimized a whole bunch of product pages with enhanced copy and imagery. We’ve simplified our menu and web site navigation, we’ve added stay chat assist, and we’ve carried out different key enhancements to assist the shopping for expertise on-line. Because of this work within the first half of fiscal 2023 in comparison with the primary half of fiscal 2022, our web site site visitors is up 30% and our e-commerce income is up almost 350% year-over-year. It is a really thrilling space of funding for us because the returns are very clear and measurable and we’re nonetheless within the very early innings.

Shifting on to our second quarter outcomes and our markets, we proceed to see regular demand throughout the areas with explicit energy within the Americas and Europe, and year-over-year complete core progress of 10% for our IT&S merchandise. Regardless of more durable year-over-year comparable, the place in Q2 of final yr, we noticed a really vital core progress of 15%. I additionally had the chance to satisfy with our groups and go to a number of prospects within the Asia-Pacific and Center East areas throughout Q2, and I used to be very inspired by the constructive sentiment there.

Whereas the macroeconomic uncertainty continues, general order charges stay regular within the quarter, which has continued into the primary few weeks of the third quarter. When Tony stroll by the waterfalls, you’ll see that our pricing actions so far have contributed considerably to each the highest and backside line, and I’m happy that our ASCEND initiatives additionally drove a considerable enchancment in our adjusted EBITDA margins within the quarter, enabling us to achieve file ranges because the launch of Enerpac Device Group in 2019. Tony will present extra particulars within the monetary outcomes, however I simply wish to reiterate how excited I’m in regards to the progress we’re making throughout the group to unlock the total potential for Enerpac Device Group to create vital shareholder worth.

Shifting onto the areas, the Americas delivered core gross sales progress within the low double-digit percentages within the second quarter, pushed by year-over-year enchancment in each product and repair. Each the infrastructure and rail verticals proceed to carry out nicely on account of ongoing authorities funding and upkeep. And in our heavy lifting know-how or HLT enterprise, we noticed a number of massive initiatives convert to orders within the second quarter delivering some quick income and serving to to construct our backlog for the rest of the fiscal yr.

As well as, efficiency from our OEM prospects was sturdy with a lot of our high companions putting orders and taking shipments within the quarter. And inside Latin America, core product gross sales have been pushed by copper mining and rail automotive manufacturing. Whereas the oil and gasoline market generated good exercise on the service facet. Demand continued to be regular throughout the board throughout the area. Nevertheless, distributor sentiment remained cautious pushed by inflation and thereof concern of a possible recession.

Shifting onto Europe, this area delivered strong year-over-year core progress within the mid-teens percentages pushed by broad-based enchancment in each product and repair and from a vertical market perspective. The area continued to profit from authorities funding in each infrastructure and rail, whereas wind additionally skilled sturdy exercise on account of the concentrate on renewable vitality. On the service facet of the enterprise, the year-over-year enchancment was pushed by elevated oil and gasoline upkeep spend with just a few massive initiatives in Germany. As well as, our extremely differentiated leak sealing companies continued to be in very excessive demand with new purchasers and initiatives within the area driving geographical growth. HLT additionally skilled strong exercise and several other massive orders within the second quarter. Regardless of sturdy demand, distributors remained cautious on account of the unsure macro-economic atmosphere.

Shifting on to Asia-Pacific, the area had year-over-year core progress share within the low single digits. From a vertical market perspective, mining continued to be favorable within the quarter, pushed by demand for iron ore, coal, and valuable metals. Infrastructure is robust in Australia attributable to authorities funding and enormous initiatives together with roads, railings, and airports. As well as, ship constructing in Korea and Japan continued to be constructive pushed by the transportation of liquified pure gasoline.

And turning to the MENAC or Center East area, MENAC skilled a year-over-year core decline within the low double-digit percentages, pushed by our continued implementation of 80/20 and a extra selective course of for quoting service initiatives, notably targeted on extra differentiated options. This has led to a year-over-year constructive influence to the underside line within the area. Total, service exercise remained sturdy and upkeep work that had been pushed out in late fiscal 2022 started final quarter and continued in Q2. And from a vertical market perspective, oil and gasoline continues to be favorable pushed by oil and gasoline costs, and the area continues to make investments in each infrastructure and energy era, together with vital investments in various vitality.

Shifting on to Cortland, the Cortland enterprise delivered core progress of 4% year-over-year within the second quarter. Because it pertains to the medical portion of the enterprise, demand and order charges proceed to be strong for industrial merchandise with orders obtained for the 2 orthopedic merchandise that we launched in Q1. We anticipate extra industrial launches within the third quarter, together with each cardiovascular and orthopedic merchandise. And shifting on to the economic facet of the Cortland enterprise, we skilled strong exercise in our industrial finish market with ropes and slings being utilized in varied building and heavy elevate functions. Cortland Industrial continued to profit from federal funding for government-related initiatives evidenced by the exercise within the aerospace, protection and oceanographic markets. Considerably improved lead occasions additionally allowed Cortland to be extra conscious of buyer necessities and seize extra orders within the quarter.

Now I’ll hand it over to Tony to take us by the Q2 monetary outcomes and supply an replace on operations. Tony?

Anthony Colucci — Government Vice President and Chief Monetary Officer

Thanks, Paul, and good morning, everybody. Now turning to Slide 9, let’s evaluation our adjusted Q2 outcomes. Internet gross sales within the second quarter have been roughly $142 million, which is a 6% improve in core gross sales over Q2 2022. Device product core gross sales have been up 10%. Service core gross sales have been down 4% and Cortland core gross sales have been up 4%. Adjusted EBITDA margin was 22.7% within the quarter, which displays a forex impartial incremental profitability of 186%. The adjusted tax fee for the quarter was 18%, which is flat to the prior yr second quarter. This resulted in an adjusted EPS of $0.35, up $0.21 over Q2 of fiscal 2022.

Turning to Slide 10 for particulars on our gross sales efficiency within the second quarter. Reported year-over-year web gross sales have been up 4%, together with the FX headwind of roughly $3 million, pushed by the strengthening of the U.S. greenback primarily associated to Euro and GBP. Product core gross sales elevated 9% as we continued to see constant demand for our merchandise. The second quarter noticed strong constant progress throughout areas, together with double-digit progress in Europe and high-single-digit progress in Americas, MENAC and APAC areas.

Pricing actions contributed roughly $10 million to the highest line with roughly half of this profit within the quarter attributed to the influence of ASCEND strategic pricing. Lastly, service core gross sales have been down 4% over Q2 2022, pushed by declines in our APAC and MENAC areas, as we lapped sturdy prior yr progress in each areas. In MENAC, this contains the purposeful exit of low margin service enterprise. The core service decline was partially offset by Q2 progress in our Europe and Americas areas.

Turning to Slide 11, reflecting a constant pattern famous in earlier quarters, IT&S product web gross sales considerably exceeded the height vary of the 4 years previous to COVID and financial 2022, pushed by sturdy demand, pricing, new product launches, and the execution of our ASCEND gross sales progress methods.

Transitioning to second quarter adjusted EBITDA on Slide 12. We delivered over $32 million of adjusted EBITDA in Q2, roughly a $16 million year-over-year enchancment. Second quarter adjusted EBITDA margin was 22.7%, which is a rise of almost 1,100 foundation factors over Q2 of fiscal 2022. Pricing actions have been the largest driver of EBITDA enchancment within the quarter, pushed by roughly $7 million of the development.

Product productiveness enhancements in our manufacturing vegetation and provide chain drove an extra profit of roughly $3 million within the quarter, pushed by improved manufacturing plant absorption and decrease year-over-year freight value. The influence of product quantity and blend was roughly flat for the quarter.

Service quantity and blend contributed roughly $1.5 million of EBITDA progress versus final yr, primarily pushed by the Americas with progress in rental gross sales and improved margins of manpower, in addition to MENAC margin growth pushed by 80/20, extra selective undertaking quoting and favorable combine. Cortland contributed $400,000 of EBITDA enchancment behind a stronger mixture of medical gross sales and improved industrial productiveness.

Excluding the favorable influence to largely European prices, ensuing from the stronger U.S. greenback, Q2 SG&A was down roughly $4 million when in comparison with the prior yr. This was pushed by lapping the non-repeating dangerous debt reserves in Q2 fiscal 2022 for the agent within the Center East and the Russia receivables. Together with decrease wage and wages ensuing from financial savings tied to restructuring actions and with selective reorganization in SG&A features, larger year-over-year short-term incentive compensation partially offset these financial savings.

As Paul beforehand talked about, second quarter adjusted EBITDA was additionally positively impacted by the execution of our ASCEND transformation program, which we estimate positively impacted the quarter by roughly $15 million. We incurred roughly $3 million in restructuring costs within the quarter related to our ASCEND transformation program. The related financial savings from these actions started to stream by within the quarter and can take full impact in fiscal 2024 for these particular initiatives.

Shifting on to operations, per our messaging from final quarter, we continued to see easing of the post-pandemic provide chain challenges. Within the quarter, we noticed half and part availability enhance and we have been capable of work by older overdue backlog within the Americas and Europe. We noticed continued enchancment on year-over-year freight prices as we continued to tighten up our utilization of expedited freight, but in addition noticed decrease ocean freight charges in comparison with Q2 2022. Lastly, general inflation in each labor and commodity prices continued within the quarter, albeit at a decelerating fee from prior quarters.

Regardless of the aforementioned constructive indicators, we stay cautious as we imagine provide chain headwinds may proceed to be challenged all through the rest of calendar 2023. We’ll proceed to watch and proactively modify to the altering enterprise atmosphere, together with retaining an in depth eye on inflationary pressures and addressing with extra pricing actions as wanted.

We’ll wrap up the monetary abstract with liquidity on Slide 14. We used roughly $10 million in free money stream within the quarter in comparison with constructive money stream of $8 million in Q2 2022. This was attributable to ASCEND associated funds made within the quarter. Excluding the influence from international forex translation, working capital elevated, primarily pushed by decrease payables, primarily associated to ASCEND along with will increase in web stock and accounts receivable.

Capital expenditures have been roughly $2.4 million within the quarter. Our leverage is at 0.9 occasions remaining beneath our goal vary of 1.5 occasions to 2.5 occasions. With our strong general liquidity place and robust stability sheet, we imagine we’re nicely positioned to assist our balanced capital allocation priorities, which incorporates our ASCEND transformation program, different potential inside investments, returns to shareholders together with vital capability to pursue strategic alternatives by M&A. We stay dedicated to leveraging our capital place to drive long-term worth for our shareholders.

With that, I’ll flip the decision again to Paul.

Paul Sternlieb — President and Chief Government Officer

Thanks, Tony. So primarily based on the outcomes of the primary half of the fiscal yr, present international alternate charges and our view on the rest of the fiscal yr, we now anticipate full yr web gross sales of $580 million to $600 million and an adjusted EBITDA vary of $118 million to $128 million, together with an ASCEND EBITDA advantage of $32 million to $38 million. That is primarily based on present international alternate charges and assumes there may be not a broad-based recession.

Earlier than I — we wrap up, I’d prefer to thank all our staff all over the world for his or her arduous work and dedication to creating Enerpac Device Group a extra agile, environment friendly, and in the end a extra profitable firm. The group has gone by an amazing quantity of change during the last yr since we introduced the ASCEND transformation program. All that onerous work is paying off as demonstrated in our sturdy outcomes, which we’re extraordinarily happy with, and it will merely not be potential with out the broader Enerpac crew that we’ve got in place. Regardless of the unsure international macroeconomic atmosphere, we imagine that the work we’ve executed associated to our progress technique and ASCEND has us nicely positioned to ship enhanced shareholder worth.

In closing, I’d additionally like to specific my honest because of Barb Bolens, our outgoing EVP and Chief Technique Officer. We not too long ago introduced as a part of our continued simplification efforts, the elimination of the Chief Technique Officer function. And in consequence, Barb shall be departing Enerpac on April 1. We lengthen our heartfelt gratitude to Barb for her management and contributions over the previous almost 5 years and we want her a lot continued success in her future endeavors.

That concludes our ready remarks. However as all the time, please be happy to achieve out to Bobbi Belstner, in case you have any questions. We thanks for becoming a member of our Q2 earnings name and we look-forward to talking with you once more in June for our third quarter outcomes. Thanks and have a very good morning.

Operator

[Operator Closing Remarks]