Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to enter pectoral group's first quarter earnings conference call.
During the presentation, all participants will be in listen only mode.
Afterward, we will conduct a question and answer session.
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As a reminder, this conference is being recorded December 19th 2019, It's now my pleasure to turn the conference over to par Poland E. B P corporate strategy Investor Relations and Communications. Please go ahead Mr. Colin.
Thank you Donna good morning, and thank you for joining us for Enerpac tool groups first quarter 2020 earnings conference call.
On the call today to present, the company's results or Randy Baker, President and Chief Executive Officer, and Rick Dolan Chief Financial Officer.
So with us or Bobby Belsher director of IR strategy, SAP or study General Counsel and Brian Johnson, Chief Accounting Officer.
Our earnings release in slide presentation for today's call are available on our website at <unk> Enerpac Dot com and the Investor section.
We're also recording this call our private on our website.
He's got a slight you.
During today's call will reference non-GAAP measures such as adjusted profit margins at adjusted earnings.
You can find a reconciliation of non-GAAP measures to GAAP in the schedules to this mornings release.
We would also like to remind you that we'll be making statements of today's call in 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 assay she filings for the rest and other factors that may cause actual results to differ materially from forecast anticipated results or other forward looking statements.
Consistent with how we have conducted prior calls we ask that you follow or one question one follow up wrapped up in order to keep today's call to an hour and also allow us to answer questions from as many participants as possible. Thank you want to pass for your cooperation.
Now I'll turn the call over to Rabbie Pittsburgh. Good morning, everybody wanted to start today on slide three but before we get reviews. The first quarter results, we'd like to take a moment to recap on Investor day on November 14.
Our first quarter marks the beginning of our new pure play to accommodate with 110 years ago Street outstanding employees at more than 2000 dealers dedicated to serving our customers worldwide.
In fact brand strength and reputation Oh precision quality and safety is the cornerstone of our company is fundamental to our commanding market share.
The strength of our profitability wise in the composition of our revenue coming from high margins tools and rental sales representing over 80% or business.
And the combination of a strong brands participation in 13 vertical markets.
Actual results that's great at the top performing industrial tools Kaufman.
Now turning over to Florida for our strategy to achieve sustainable growth through disciplined capital allocation remains consistent.
That's an inorganic growth continues to deliver results and as we enter a more challenging market conditions. These investments are even more important.
Our new product contributions to sales in the quarter increased over 10% and has moved quickly towards exceeding our Chester set goals achieving sustainable growth above market conditions is fundamental to a great company and we made significant progress toward towards this objective.
During the quarter, we repurchased 840000 shares returning value to shareholders every paid or term loans as a result, our net debt position because of a low point, providing future flexibility for both organic and acquisition was growth.
After spread during our Investor day, we have developed a strong pipeline of potential acquisitions would support for true growth objectives.
However, acquisitions will always be subject to the strict investment criteria and evaluation the impact of the growth strategy.
The impact over its strategy is clear.
And we're not compromising on or objectives to improve this great company.
Overall, we're pleased with the performance of our first quarter and in fact tool group and the progress towards reducing costs, increasing margins and improving shareholder returns.
Oh flipping over to slide five.
Our five year objectives.
Further enhance the quality of Enerpac.
And we expect our actions will places at the top tier of our peer group.
Our core growth objectives remain consistent and we're striving to outperform the market by between 200 300 basis points and achieve a five year compounded growth rate of 5%.
Definitely product innovation commercial effectiveness and expanding served industries is the catalyst for achieving ascendiant.
From a profitability perspective, we have made clear cost actions.
To achieve our EBITDA run rate up 20% as we exit the fiscal year as we have described in our Investor day, we have additional structural corporate actions to further expand our profitability performance in fiscal 2021, ultimately, we're very committed to achieving a 25% EBITDA margin.
Our ability to generate strong cash flow is fundamental to our future growth, which is why we are improving all aspects of our working capital to drive efficiency and deliver consistent cash conversion above 100%.
And finally, we are committed to expanding a return on capital to 20%.
While maintaining a strong leverage position of between 1.5 in 2.5.
The combination of these factors create a very high value company, what lower cyclicality and greater earnings potential.
Over the past four years, we have completely repositioned company as a pure play tool business and watch their back to a group.
Going forward, we will continue to increase shareholder returns and never compromise on our pursuit to make the impact to agree a top performing company.
Going to turn the call over went down and he'll review details on the quarter Thatll come back with the market update guidance.
Thanks, Randy and good morning, everyone before we dive into the results for the quarter I wanted to call out a few of the items included any adjustments the onetime items on a GAAP to non-GAAP reconciliation in the appendix.
First we've completed the sale of Vcs and all of the strategic exited product lines as discussed last quarter, our portfolio accident complete and we are positioned to focus on strategy execution going forward, we received 9 million and proceeds from the product line divestitures. During the quarter. These proceeds were offset by the net assets associated.
The product lines, resulting in a net gain of $1 million.
So let's move on to the fourth quarter results on slide six sales of 147 million were higher than our guidance for the quarter core sales were flat in the quarter and inline with our expectations as Randy mentioned, we exceeded our new product vitality gold of 10% and we believe this achievement along with the improvements we have made.
And our overall commercial effectiveness is allowing us to outperform the market.
Globally tool sales remain challenged consistent with global economic indicators at our market outlook for fiscal 2000.
Adjusted EBITDA margin improved in the quarter by 100 basis points, the effective tax rate for the quarter was approximately 12% higher than the prior year, but lower than our guidance the rate for the quarter reflects the timing of new regulations, which had been been expected later in the year. So our guidance for the year remains 20%.
Despite the higher effective tax rate and the lower sales volume volume strong year over year margins deliberate slightly higher EPS compared to 2019.
Hey at 12 cents per share we were at the top of our guidance range.
So turning to our sales waterfall on slide seven.
Core sales were flat for the quarter, Oh tools and service sales decreased by 1% respectively. The impact from the strong dollar reduce net sales by an additional 1%.
And the impact of strategic exits was approximately $10 million.
We saw double digit growth and Portland medical products led during the quarter.
To.
Core sales results were varied by region North America products sales continued the modest deceleration we saw in Q4.
Core tool sales were down low single digits, excluding the impact of a large powergen order that slipped out of the quarter, but was booked on December 1st at a 1 million dollar decline and heavy lift products sales attributable to timing and a lumpy nature of the category. The low single digit decline is consistent with our expectations for the year.
And what we are hearing in the market. Our distributors are reporting mixed results with certain regions in North America, roughly flat to last year.
There was a showing moderate declines best especially in certain challenged verticals.
None however, I'm expecting significant worsening as the quarters continue ahead.
Product sales in Europe , we're up low double digits versus the prior year.
The Overperformance was driven by several heavy lift products again, removing the impact of the lumpy HLC tea products core tool sales were flat year over year with demand appearing to stabilize from low to mid single digit declines we saw in the fourth quarter, while certain countries are seeing stronger demand and others are flat to down.
Thanks.
And the rest of the world was relatively flat.
Taking a look at service our Middle East region continued strong performance with year over year growth in excess of 20% as we continue to capture a series of small unplanned projects in the region.
This was offset by the large projects we had.
And a pack in Europe in the prior year and as expected drove the year over year decline and service.
Lastly impact the pricing wasn't negligible for the fourth.
If we turn to slide eight cats as I said earlier, despite the reduction overall sales our adjusted EBITDA margin improved by 100 basis points, and we were able to hold EBIT to flat. Despite these volume headwinds.
The strategic product and service exits at the and the benefit from 2019 restructuring actions resulted in improvements in EBITDA that more than offset the impact of volume declined at a mix that favorites service NHL tea in the current year versus prior year. We also benefited from strong.
So businesses this quarter and as we noted the profit profile for these products are very somewhere to our tool products.
If we turn now to our balance sheet and liquidity on slide nine we used approximately 25 million of cash during the quarter versus 36 million in the first quarter fiscal 2019, which was in line with our expectation expectations significant it can't be lower working capital build during the quarter. This year.
And lower bonus paid payments drove the improvement year over year.
It's definitely worth noting that both years included cash used by the discontinued SCS operations and in addition to the transaction, we really costs Dcs consume 17 million and 27 million in primary working capital alone in the first quarters of fiscal 2019 and 20, respectively.
Capital expenditures were 5 million down from 8 million in the prior year.
We ended the quarter with 277 million of cash on hand, as Randy noted following the October 31st close of East, Yes transaction, we paid off our term loan leaning towards an 86 million of long term bonds as the remaining debt outstanding. We also bought back approximately 840000 shares of stock at a cost a proxy.
18 million during the quarter.
Both consistent with our capital allocation priorities as we manage our balance sheet and Opportunistically return capital to our shareholders.
Our leverage now sits at 0.8 times versus 2.1 times in Q1 of 2019, our balance sheet provides us with a lot of flexibility to continue to execute execute our growth strategy.
Before I turn call back over to Randy I wanted to take another look at our EBITDA margin expansion slide from our Investor Day, I provide more color on our progression to date and how we expect to achieve the 220% annualized EBITDA run rate as we exit fiscal 2012.
So if we turn now to slide 10.
Our EBITDA margin <unk> margin walk from Investor day, as we discussed in detail on Investor Day, We believe we have a clear path to achieve our annualized 25% margin target as we look forward to 2024.
If you start at the bottom of the page, we have either taken actions or have actions and process today that would allow us to end fiscal 20 with the ability to achieve an annualized run rate of 20%. So.
So, let's walk through how that shakes up during the year and our targets for future savings.
We ended fiscal 19 with EBITDA margins of 15%. We included 200 basis points of improvement in our guide for 20. This reflects savings from the elimination of the 9 million Vcs stranded costs and 8 million benefit from restructuring actions, we announced it and began implementing in 2019.
The savings were partially offset by the adjustments to bonus expense.
And as we progressed through the year, we expect to number one complete the restructuring plan announced in 2019, when we identified 12 to 15 million of annualized savings. We expect to have taken actions by the ended the year to deliver the high end of the projected savings. This will result in an additional 7 million annualized.
Savings that we will have completely executed by the back half of this year.
We will also have eliminated. The addition of 4 million ldcs stranded costs by the ended the year that combined these two actions will add an additional 200 basis points of margin based on the midpoint of our 2020 sales guy.
Secondly, we plan to complete the Cortland plant consolidation in the back half of this fiscal year. This will drive 5 million in savings, which includes the onetime charge of 2 million in this year to execute the plan for 100 basis points of year over year margin improvement.
With these actions complete we will end the year positioned to deliver 20% annualized EBITDA margins in fiscal 2001 again calculated using the midpoint of our current your sales guidance.
So second stepping back here at laid out in our strategic vision at the top of the page. We are targeting another 10 million or approximately 200 basis points from structural cost reductions to rightsize the organization as we exit the transition services agreement associated with these yes the transaction.
While there will potentially be some opportunities in fiscal 2000 <unk>. We expect these actions to begin in earnest as we progress the fiscal 21 and the vast majority completed.
By the end of 21.
We're also targeting an additional 100 basis points some improvement from the execution of an Enerpac plant optimization project that will likely commenced in the back half of fiscal 21, and we'll have a longer tail to achieving be annualize 100 basis points improvement to ensure that we don't have a negative impact on operations or our ability.
He to deliver product.
Collectively all in through structural cost reductions and manufacturing footprint out Demonisation. We believe we are well positioned to deliver annualized.
600 basis points of EBITDA margin improvement as we end fiscal 23.
So that's based on our 20 guide revenues. These actions would result in an EBITDA margin of approximately 23% with a path to 25% by fiscal 2004 being driven by incremental probably profit on our targeted 5% compound growth.
With that Randy I'll turn the call back over to you. Thanks Rick.
Move over to slide 11 market conditions continue to be volatile due to the uncertainty going to trade agreements and the exit of UK for the European hearing in the quarter PMI Index is improved slightly from increased order man, but for trends remain consistent European trade area is the weakest performing market, while North America Ics.
I think sluggish growth.
Enerpac dealers remain very conservative and are actively constraining you'd product in or inventory of the first 13 vertical markets.
Your positive while the remainder are experiencing a moderate declines as a result, our forward core sales expectations remain unchanged from the fourth quarter guidance on a consolidated basis, we expect full year results to be down 3% to up 1%.
Now moving over to slide 12.
Our.
2020 fiscal full year guidance remains unchanged at between 575, and 600 million with adjusted diluted EPS of 68 cents to 81 cents per share.
Free cash flow between 50 and 75 million.
Second quarter is traditionally our weakest sequentially and when we experienced tougher service comparisons due to large projects in Q2 19 based on this was our second quarter sales are expected to be in a range of 133 to 140 million.
Which includes the impact of 12 million of strategic exits.
Adjusted diluted EPS will be in the range of eight to 12 cents per share.
And our tax rate assumptions for the year remained consistent at 20%.
In summary, we're off to a good start and our new fiscal year and the launch of greater factual group.
Making significant progress towards cost reductions and creating a more efficient and profitable company.
With that from all of US here at Enerpac, we'd like to wish her investors and employees are safe and happy holiday season, and Donna let's open it up for questions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad take home furnishing Tom will indicate your line isn't the question Q.
You May press Star Cioffi, what they tree move your question from the Q for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
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First question today is coming from and do you can of JP Morgan. Please go ahead.
Hi, good morning, everybody and happy holidays.
Yes.
I guess vending my question have you. My first question will be I could you give us a little bit more color in terms of the 13 verticals only treat our positive.
I was that a north American comment without a global comment and then you know I did you see a end market demand I progressed kind of the cadence as you went through the quarter will be helpful. Thanks, and then obviously address the Boeing having 37, Max both direct and indirect and I like that that thanks.
Okay, all right. Thanks.
So from a 13 verticals the markets, it's still seem pretty good is obviously aerospace we see still quite a bit of growth in aerospace markets.
We also see pretty good activity in civil construction civil engineering around.
Theres still a lot of activity in Europe in that area, especially wind energy and that's certainly helps and then on non traditional energy sources as Rick mentioned on the earnings call.
We do have some nice order activity in the nuclear sector for refueling operation. So.
The major verticals, we still like some of the alternative energy, we like certainly aerospace and civil construction around the world continues to be reasonably well the rest of on we could spend an hour going through each individual one but they are they're all in and you've seen some of the reports.
That would indicate there down a bit.
So on the 737 Mac side, obviously, they have about 400 claims parked right now I think that exact numbers about 387 that are part.
Boeing has got about 400 sitting in their delivery Q.
The issue there is they still haven't come up with electronic fix that I think the failures is acceptable with that I haven't read all the details on it but clearly they still Evan masking electronic solutions. So do they start that they have to retrofit all those engines from the CFM leap to something different which would go back to the.
The original Cfmfifty six.
That could create an unknown enormous remanufacturing opportunity for re man centers, all over the North American and the world market. So obviously, we participate in that aerospace.
But certainly Boeing yes to answer those questions on what the plan is going for the whether it's an electronic fixed or a structural fixed and aircrafts.
That's very exposure right now to the reduction aren't bad production stoppages, and indirect and direct I mean that supply chains can be impacted so could you talk about.
Your participation in broadly and in that market.
Yeah. Our primary participation is in the jet engine, and we make torque turning devices and torque tension devices.
For the assembly of the entire Boeing and at Pratt and Whitney product lines and even into the.
Charles was rolls Royce button to a lesser extent so from our exposure is purely on the engine side.
There are there are tools that are used in Boeing operations and their assembly lines and in the Emrose centers around the world, but the biggest exposures on the engine, we haven't felt anything in that area our to our aerospace deliveries are still pretty good.
But you will be impacted by the shutdown and if they shut down the engine assembly the GE.
Engine Assembly.
Yeah, if there's a demand for changing from what we back to the.
Cfmfifty six them certainly that would change some of it the demand from our perspective.
It's hard to really recommend how that's going to affect us come a long run.
Because that type of a fix was a massive expense to Boeing if they have to do it.
But from our perspective, it's still very healthy and no I don't believe theres any incremental headwinds that could occur from the the.
Some 37, Max I think largely for our company, we could see some upside if retrofits are required.
Okay, maybe I don't fully understand but I don't understand it a G.E. shuts down their engine assembly facility supplying.
Max when you'd be impacted and I leave it there.
Well there can they're converting over to they were they're going to be getting different types of aircraft, whether it's on I've seen some reports that they're converting orders from some 37 to 787.
And then if they're converted over to Airbus.
That's a different story, we are on a lesser extent supporting those factories.
But again, we haven't seen any any major impact us and we're not predicting anything that would fundamentally hurt our sales volume going forward.
Okay, I look at that and interest uptime I appreciate the color. Thank you okay. Thanks, Dan.
Thank you. Our next question is coming from Jeff Hammond of Keybanc capital markets. Please go ahead.
Good morning, everyone.
Hi, good morning.
I just want to understand a little bit better the cadence of the run off of the strategic exits I think you said 10. This quarter 12 next quarter I mean does that step up into the second half war or are we still looking for 55 million.
And then can you just talk about.
The service comp.
And does the service comp and to Q and.
And kind of around that what we should expect for the service business.
The two key effects.
Sure.
So from a strategic exit.
Perspective the.
Q2 in Q3 would be the strongest impact and that's consistent with the gross.
We saw in service and those those quarters.
Last year. So we said 12 million for Q2, it's about 15 million for Q3, and then it starts to decline similar to the trends you saw.
And last year, so it's about 10 million.
Before I think that.
Good.
That's that's kind of the pace you should see.
The if you remember from our Q2 perspective that was a from a core perspective that was one of the best.
Quarters, we had in the history last year so.
When you look at service.
By today that it was.
In the low 20.
Last year, so a significant growth quarter in the second quarter and that was driven by we had those large projects that milling kept us afloat.
Last year in terms of outsized growth, that's what really drove that high turnover and Q2 of last year. So if you fast forward to our guidance for service [noise].
And she too that's why you see such a forecasted.
No.
Q2.
Core growth assumption, so that that CCOP and just say it's huge.
Pulled out the strategic exits, but the large projects we're very significant.
In the quarter last year.
Okay. So that so that piece is kind of continuing at that kind of low single digit decline rate into Q.
Yes.
Okay, and then just a couple of cleanup items just with the changes can you can you give us what do you think the then the go forward run rate is for interest expense kind of given that.
You know the shift sale and then I think you were planning a step down in the you know in the corporate expense, how should we think of Twoq corporate expense and kind of full year.
Uh huh, so I'll pick up.
With corporate.
And.
When we.
What we said about corporate it this year is primarily the elimination of BCS stranded costs. So we've got roughly 9 million.
Of costs that we're taking out and that'll occur essentially even over the next three quarters.
Yeah. So there are some variable corporate but I think from a guide perspective, we were really factoring and.
About 9 million.
And so from an interest expense perspective.
It should be about 5 million.
Quarter is how you should look at that and Thats down from the prior year.
Due to the payoffs on the terminal.
And then just just one more to Q tax rate.
It looks 20%, okay. So just run rate to 20% or most of the year essentially yes, okay Oh, okay. Thanks, guys.
Okay.
Thank you. Our next question is coming from Allison Poliniak of Wells Fargo. Please go ahead.
Hi, guys good morning.
Good morning, just following up on Jeff's question corporate expense. It it does seem like you've added some as well in terms of corporate development.
Is there a better way to pressed to think of it and just I know some of those costs are coming out but it just help I don't know quantified how what's going into that number going forward or how we should think about an exit there.
Sure.
We haven't really from a.
Based perspective, I think he should still think about corporate has about $30 million.
What you're seeing on the corporate development piece is we do still have hangover SCS.
Acquisition costs.
That transaction is behind us as of the ended the quarter, you'll still see some regular straggling Ashley.
Cost associated with that as we progress and that's in the guide but.
From a go forward steady state as you're modeling it very million as what what we have out there.
As a corporate piece.
Got it thanks, and then I just want to turn back to that new product development comments, you had said I'm, obviously going and driving a little bit higher sales for you.
You commented that it was helping you to grow above market is there any way to help quantify that.
Yes.
We have been pushing really hard we finished last year in high single digits.
And this is the first quarter, but I can remember, where we now exceeded the 10% Mark.
And so when you think about 10% of your revenue that's popping from the.
New MPD, new products that didn't exist in prior cycles, and they're helping us grow that's fundamentally a nice thing to house. So if you can easily do them out even if it's just a flat 10% you can see the impact on a quarter is significant in the margins are in line average of where we like it. So it is definitely.
Helping us stabilized market condition excites dealers keeps the.
Field sales force excited about going out there and talking about something new makes their jobs easier.
And quite honestly, when we get our promotional activities correct and how to police demo units in the right hands on that can generate some nice orders for so it is a very important part even more so in a down market because that's where it really helps you out.
Got it and can I assume that they're all in the tools that's will segment.
Yes, so I can't give you the exact splits but when we review that monthly on exact composition of the MPD contribution so.
We had some torque intention and just to be clear when we won read completely redesigned a one of our ranch lines. We didn't include that.
So it was a plot product we called the Arsenal ranch in part of Hydratight, when we redesigned it and re launch that we did not include that in our MPD. So it's not paint and details that you're talking about here, it's truly good new launches and so torque intention had some nice launches we had some things in our.
Machining business were new Oh, we had some things and lifting that were knew we had some do cylinders that came to the market and we had several brand new car platforms that launched so it was very broad and we're starting to see performance out of all of our major design platform. So.
So we still have some that are lagging others, but.
Clearly the culture of being innovative is starting to really move.
Great and time to do that.
Great. Thanks.
Thank you. Our next question is coming from me outbreak of Robert W. Baird. Please go ahead.
Good morning, everyone. It's Joe Grabowski on for me. This morning, [laughter], Florida. Good morning, I wanted to start with Q2 guidance.
Obviously, you didn't have Q2 guidance out there our prior but Q2 guidance, sorry, EBITDA and EPS was below consensus [laughter] and seems to imply a low 13% margin.
Similar to Q1, [laughter] and then that implies a 20% EBITDA margin in the second half or would've thought we'd see some sequential EBITDA margin improvement if for no or the reason that the stranded costs incorporate should should start to go away. So talking about Q2 guidance and then what dry.
Just the ramp from 13% in first half the 20% in the second half.
Well a couple of things that ramped isn't all that unusual.
I think the what's driving Q2 is significant drop in the top line.
And so obviously, you're losing some contribution margin.
And as we talked about.
That those larger service jobs that we had last year.
We're in the region, where service profitability is a little bit above.
She is quite a.
A lot higher and what I'll call normal run rate.
Service, So I think for the most part it's the combination of the lower sales volume and it's much lower than last year. When you look at strategic exits.
And the.
Mix of the the volume that.
Now versus the volume that we expect Q2, all driving lower contribution to a fixed cost base.
The.
Got it 4 million.
Yes.
Stranded costs and so when you look at that from a year and you kind of yeah.
Do the math, we'll have that we always do a max.
Better margin performance in the back half.
Okay. Okay. Thanks for that cover and maybe to just get specific then on corporate expenses.
How much will they go down in Q2 versus Q1. It does it sounds like maybe not the entire threemillion, but how much do they stepped down.
You've got the.
The.
Got it three 4 million from the Ts say, but we still have we haven't as we talked about it I talked about on the margin walk.
We haven't been able to take significant actions to actually take.
Take down that 30 million if you will for a couple of reasons as I mentioned, you're going to have some corporate development stuff floating around.
As we wrap up.
We see us fully wrap up yes activity, we are providing a subject of the Ts, saying the TSH income.
It's what's kind of help causing us to keep our corporate group intact.
So that we don't impact our ability to deliver which is contractual at this point. So yes, we did and don't have significant true corporate cost structural cost take out factored into the 20.
There, maybe some opportunities as I said before.
And we'll take those as they come and certainly through the year as if yes is able to come off the Ts say they vary but a move earlier than we were able to move earlier on caustic.
But you get the full T I say in the second quarter.
Yes.
Okay, Alright, and then just one quick follow up in the other segment Courtland.
Hi, operating margin EBITDA margin took a step down.
Versus the last three quarters of last year is that your seasonality or anything else maybe any.
Sure I am, especially <unk> expenses in the first quarter well, you've got you've got some expenses associated with the consolidation. There that are that are draining some of that operating profit net income.
But as Rick mentioned once we wrap up that's.
The business starts really performing quite well, especially once we get into Q3 Q4. So those expenses that are associated in that 5 billion dollar cost a chunk of that youre onetime expenses that wont reoccur.
Got it okay. Thanks for taking my question I'm happy holidays.
Yes.
Once again, ladies and gentlemen, if he would like to register question you May do so by pressing star one on your telephone keypad.
Next question is coming from Justin Bergner of GE Research. Please go ahead.
Good morning, Randy Good morning, Rick.
Morning.
Few questions here I guess.
Just start I think you send the prepared remarks at the core sales delivered in line.
I would your expectations in the quarter than they were helped I think <unk> pay one factor I just wanted to sort of clarify if that wasn't the case and maybe if you could just.
Reiterate what that factor was it helped in the corner that goes away.
I think we of course sales were in line with our expectations.
What we said, it's what's already just talked about.
It was helped.
Consistent with our expectations.
For MPT, NPD vitality as well as commercial effectiveness and the notion that we would outgrow the market out there was no specific item that's going to go away.
Hurt us.
Not a onetime project or an order sitting there that that would be somewhat unusual that it's just the performance of the general businesses.
Was fairly broad and then we've got good.
MPD performance and so.
When you add it all up we're able to outperform what we believe there is a fairly difficult marketing some personal well, we did say relative to that tools business as we did have a.
Order.
But out of Q1 to Q2.
And.
Despite that the core.
Well for the year will remain as as we expected there is a little bit of a.
Flip there, but not impacting our over expectation for overall core during.
Okay. So that was the was that in the energy side that slipped from Q1 to Q2 right.
It was power Gen.
Okay I wasn't sure if there was something.
He said in regards to the enter in energy.
No.
Okay, Powergen order that that change quarters.
Okay.
I guess my other question was with respect to the East CNS sale I think he said the scene that's consumed a decent amount of working capital in the first quarter.
Do you get that back as part of a working capital adjustment.
In the sale.
The keep in mind.
The any working capital adjustment is that based on historical targeted working capital at the close of the transactions. So we have a target out there and.
We'll settle that here.
Some point in the coming months.
So that the point of calling that working capital build out is.
Just reemphasizing that when you look at a standalone pure play tool company.
As it always has been the Dcs business is far more was far more working capital intensive and Tencent and was not driver of the strong cash flow for this business. If he just look at that working capital use alone and apply that to the cash.
Cash used in the quarter.
Kind of really emphasize is that for you. So.
So it's not a dollar for dollar return because they obviously, it's based on average working capital.
Historical level.
Okay. So some of that working capital usage in the first quarter sort of works against the sales proceeds.
From the no.
No no no no.
We normally have working capital build if you will for both businesses and the first quarter.
The working capital build is normally significantly more weighted to you see yes.
That has no impact to certainly not a negative impact to the proceeds from.
The business.
There is a working capital settlement.
That again, we're not anticipating that significantly good or positive it's nothing right now suggesting that it it's negative.
But that settlement will happen when it happens. So proceeds are the proceeds were not expecting some significant adjustments to those proceeds the only reason you talked about.
Contribution that she has to our cash usage. So that as you think about modeling this business going forward and what the first quarter and second quarter, which are typically use quarters will look like it will be significantly better than it has been historically and the numbers you're seeing here are still on a concern.
Validated basis, which include Tcs through the first quarter.
Okay. Thanks, I, just let me just rephrase my question was more away and then I'll get back into queue. The working capital that was consumed for east CNS and the first quarter you will not.
Get that back or materially get that back.
Settlement.
No no.
Okay.
But just to be clear that is not.
Does not have any impact and should not be reflected as having anything to do what the transaction proceeds that is normal.
Through the close date, we conducted business as we would normally and we set working capital based on continuing business as usual. So we delivered the working capital that would have been expected that's contemplated by the sales transaction.
I think.
Next question is coming from Stanley Elliott of Stifel. Please go ahead.
Hi, Good morning. This is Brian Brophy on for Stanley I, just had a question about Cortland that had nice strength on the topline in the quarter can you talk about what was driving that and then guidance for the year implies a pretty sharp deceleration.
For the remainder of the year any color on what's driving that as well. Thanks.
By the Portland that the main drivers we've seen some pick up in our cable in product line in the industrial side of the business.
And I'm, obviously very very strong sales on the.
Medical side of the business. So it was a nice mixture of things, we certainly like to get the Mets side growth.
That has been as we've mentioned.
Yesterday, it's been a double digit category for awhile, so very very good business for us and it was your second question on deceleration on there. There's no I don't think maybe reading the church wrong, but theres no comfortably deceleration there.
Okay, and then given that you guys are now below your your leverage targets.
[noise] could you talk about any thoughts updates on capital deployment, how we should be thing about that for the remainder of the year and related.
What's what's the status on the M&A pipeline. Thank you.
So the capital allocations priority more change our primary things we have to evaluate all the uses of capital.
We invested in ourselves.
What we do with share buybacks you saw that.
Fourth quarter last year, we repurchased close to 2 million shirt like the actual share count would be close to 1.9 million shares repurchase so we've been able to.
Really returned a lot of value to shareholders a mad methodology.
Clearly our debt reduction as benefit us in terms of ongoing interest expense and improving that every piece of that equation now is well positioned this business to be a very top performing from a balance sheet.
So going forward.
We are going to be extraordinary disciplined on our inbound M&A.
We have a pipeline we've developed there there will be things that we talk about in future quarters, but now that we have finished the transactions. We've got the company where want it we've got the balance sheet cleaned up.
We're in a great position, we want to keep it that way and as I mentioned in my commentary ultimately keeping it between 1.5 and 2.5 is the run rate as the number that we like to keep it up I'd say in the short term you're going to see it stay well below one for some time.
Perfect. Thank you I'll pass it on.
Thank you this brings us to the end of the question and answer session I would like to turn the floor back over to management for any additional closing comments.
Thank you everybody for joining us today, we appreciate your interest and and Enerpac to a broken we wish you all happy holidays.
Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect. Your log off at this time and have a wonderful day.