Q4 2023 Enerpac Tool Group Corp Earnings Call
Ladies and gentlemen, thank you for standing by welcome to Inter Pac tool group's fourth quarter earnings Conference call.
Speaker 1: Ladies and gentlemen, thank you for standing by. Welcome to EnterPak Tool Group's fourth quarter earnings conference call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded today, October 17, 2023.
At this time all participants are in a listen only mode.
As a reminder, this conference is being recorded today October 17th 2023.
It is now my pleasure to turn the conference over to Travis Williams Director of Investor Relations. Please go ahead Mr. Williams.
Speaker 1: It is now my pleasure to turn the conference over to Travis Williams, Director of Investor Relations. Please go ahead, Mr. Williams. Thank you very much. It's my pleasure to turn the conference over to Travis Williams, Director of Investor Relations.
Speaker 1: Thank you, operator. Good morning, and thank you for joining us for Interpact Tool Group's year-end fiscal 2023 earnings call. On the call today to present the company's results are Paul Sternlieb, President and CEO , and Tony Colucci, Chief Financial Officer.
Thank you operator, good morning, and thank you for joining us for <unk> tool group's yearend fiscal 2023 earnings call on the call today to present, the company's results, our pulse sternly, President and CEO and Tony Koichi Chief Financial Officer.
Speaker 2: Our slides and a recording of today's call will be available on Interpac's website in the investor's back.
Our slides and a recording of today's call will be available on <unk> website in the investors section.
Today's call will reference non-GAAP measures you can find a reconciliation of GAAP to non-GAAP measures in the appendix of the slides as well as in our press release issued yesterday.
Speaker 2: Today's call will reference non-GAAP measures. You can find a reconciliation of GAAP to non-GAAP measures in the appendix of the slides, as well as in the press release issued yesterday. Our comments will also include four looking statements that are subject to business risk that could cause actual results to be materially different. Those risks include matters noted in our latest FCC filings.
Comments will also include forward looking statements that are subject to business risks that could cause actual results to be materially different. Those risks include matters noted in our latest SEC filings.
Now I'll turn the call over to Paul.
Speaker 3: Thanks, Travis, and good morning. It's a pleasure to be here to talk about Interpac's strong financial performance in fiscal 23.
Thanks, Travis and good morning, it's a pleasure to be here to talk about <unk> strong financial performance in fiscal 'twenty three.
Speaker 3: We also have a lot of good news to report in terms of the success of our ASCEND Transformation Program with our first full year of implementation now behind us.
We also have a lot of good news to report in terms of the success of our sand transformation program with our first full year of implementation now behind us.
As you can see on slide three full year revenue of $598 million exceeded our initial guidance and came in at the high end of the guidance, we revised upward last quarter.
Speaker 3: As you can see on slide three, full year revenue of $598 million exceeded our initial guidance and came in at the high end of the guidance we revised upward last quarter. Reported revenues expanded 5% while core sales, which exclude the impact of foreign exchange and dispositions were up 8% over the prior year.
Reported revenues expanded 5%, while core sales, which exclude the impact of foreign exchange and dispositions were up 8% over the prior year.
Speaker 3: Free cash flow also exceeded initial guidance and was toward the upper end of our revised guidance.
Free cash flow also exceeded initial guidance and was toward the upper end of our revised guidance.
Speaker 3: An adjusted EBITDA of $136 million well exceeded our expectation.
And adjusted EBITDA of $136 million, well exceeded our expectations and expanded 65% year over year.
Speaker 3: and expanded 65% year over year.
Speaker 3: In fiscal 2023, we moved into the implementation stage of our ASCEND Transformation Program designed to accelerate InterPAC's growth and profitability.
In fiscal 2023, we moved into the implementation stage of our ascend transformation program designed to accelerate <unk> growth and profitability.
To date I am pleased to report that we are ahead of schedule in terms of the timing and benefits of ascend.
Speaker 3: To date, I'm pleased to report that we are ahead of schedule in terms of the timing and benefits of a sentence.
Originally we anticipated total annualized adjusted EBITDA benefits of $40 million to $50 million by the end of fiscal 2024.
Speaker 3: Originally, we anticipated total annualized suggested EBITDAB benefits of $40 to $50 million by the end of fiscal 2024.
In the second quarter, we raised that guidance to $50 million to $60 million.
Speaker 3: In the second quarter, we raise that guidance to $50 to $60 million.
Speaker 3: In fact, in fiscal 2023, we achieved our goal, capturing a send benefits of $54 million and a year ahead of plan.
In fact in fiscal 2023, we achieved our goal capturing ascend benefits of $54 million a year ahead of plan.
Operator: Ladies and gentlemen, thank you for standing by.
Speaker 3: While Ascend remains an important part of transforming the company, given that we are well ahead of schedule, we intend to leverage the power of Ascend to transition to a focus on continuous improvement.
While our sand remains an important part of transforming the company given that we are well ahead of schedule, we intend to leverage the power of ascend to transition to a focus on continuous improvement.
Operator: Welcome to Enerpac Tool Group's fourth quarter earnings conference call. At this time, all participants are in a listen on the mode.
Travis Williams: As a reminder, this conference is being recorded today, October 17th, 2023. It is now my pleasure to turn the conference over to Travis Williams, Director of Investor Relations.
As noted in our earnings release, we have issued our guidance for fiscal 2020 for keeping it on a fairly cautious side. This is due to the continued uncertainty in the macro environment.
Speaker 3: As noted in our earnings release, we have issued our guidance for fiscal 2024, keeping it on the fairly cautious side. This is due to the continued uncertainty in the macro environment.
Travis Williams: Please go ahead, Mr. Williams. Thank you, operator.
Travis Williams: Good morning, and thank you for joining us for Enerpac Tool Group's year in physical 2023 earnings call. On the call today to present the company's results are Paul Sternlieb, President and CEO and Tony Colucci, Chief Financial Officer. Our slides and a recording of today's call will be available on Interpac's website in the investor's section. Today's call will reference non-gap measures. You can find a reconciliation of gap to non-gap measures in the appendix of the slides, as well as in the press release issued yesterday. Our comments will also include four lifting statements that are subject to business risk that could cause actual results to be materially different. Those risks include matters noted in our latest SEC filing.
Speaker 3: However, we firmly believe Interpack is well positioned to continue to outperform the industry and gain share based on the success of our four-pillar growth strategy, which includes expansion in key vertical markets, digital
However, we firmly believe enter pack is well position to continue to outperform the industry and gain share based on the success of our four pillar growth strategy, which includes expansion in key vertical markets.
Digital transformation Custer.
Speaker 3: customer-driven innovation and expansion in Asia Pacific.
Customer driven innovation and expansion in Asia Pacific.
Speaker 3: I'll let Tony review our Fiscal 2023 Performance and cover our guidance for Fiscal 2024.
I'll, let Tony will review, our fiscal 2023 performance and cover our guidance for fiscal 2024.
Speaker 3: Then I'll return with more details about Ascend and our growth strategy and the ongoing benefits to the top and bottom line.
Then I'll return with more details about ascend and our growth strategy and the ongoing benefits to the top and bottom line.
Paul Sternlieb: Now we'll turn the call over to Paul. Thanks, Travis, and good morning. It's a pleasure to be here to talk about Enerpac's strong financial performance in physical 23. We also have a lot of good news to report in terms of the success of our Send Transformation Program with our first full year of implementation now behind us. As you can see on slide three, full year revenue of $598 million exceeded our initial guidance and came in at the high end of the guidance we revised upward last quarter.
Tony.
Thanks, and good morning, as Paul said Intertek enjoyed solid growth on the top and bottom line in fiscal 2023.
Speaker 2: Thanks and good morning. As Paul said, Enter Peck and Joy's salad growth on the top and bottom line in fiscal 2023.
Speaker 3: Core Revenue, which excludes the vestitures and the impact of foreign exchange, expanded 8% for fiscal 2022.
Core revenue, which excludes divestitures and the impact of foreign exchange expanded 8% for fiscal 2022.
Speaker 3: On a core basis, product revenues expanded 12% year-to-year. At the same time, service revenue declined at 7%, due to the previously discussed implementation of a more selective quoting process, particularly in the Middle East region.
On a core basis product revenues expanded 12% year over year at the same time service revenue declined 7% due to the previously discussed implementation of a more selective quoting process, particularly in the middle East region.
Paul Sternlieb: Reported revenues expanded 5% while core sales, which exclude the impact of foreign exchange and dispositions, were up 8% over the prior year. Free cash flow also exceeded initial guidance and was toward the upper end of our revised guidance. And adjusted EBITDA of $136 million well exceeded our expectations and expanded 65% year over year. In fiscal 2023, we moved into the implementation stage of our Send Transformation Program designed to accelerate Enerpac's growth and profitability.
Speaker 3: We anticipate we will see this impact for another two quarters as we begin implementing this process in the back half of fiscal 2023.
We anticipate we will see this impact for another two quarters as we began implementing this process in the back half of fiscal 2023.
Within the industrial tools and service segment three of our four geographic regions Americas Asia Pacific Anessa, which includes Europe sub Sahara, and Africa, and India generated double digit growth in fiscal 'twenty three.
Speaker 3: Within the industrial tools and service segment, three of our four geographic regions, Americas, Asia Pacific, and Essa, which includes Europe , Sub-Saharan Africa, and India, generated double-digit growth in fiscal 23.
Speaker 3: As for the Meenak region, which includes Middle East, North Africa and Caspian, revenue declined in the mid-teens, as expected, as a result of the just mentioned selective exit from certain projects in our service business.
As for the Mena region, which includes the Middle East North Africa, and Caspian revenue declined in the mid teens as expected as a result of the just mentioned selective exit from certain projects in our service business.
Paul Sternlieb: To date, I'm pleased to report that we are ahead of schedule in terms of the timing and benefits of a send. Originally, we anticipated total annualized adjusted EBITDA benefits of $40 to $50 million by the end of fiscal 2024. In the second quarter, we raised that guidance to $50 to $60 million. In fact, in fiscal 2023, we achieved our goal capturing a send benefits of $54 million and a year ahead of plan.
The ESSA region enjoyed healthy demand from wind rail and infrastructure.
Speaker 3: The ESA region enjoyed healthy demand from wind, rail and infrastructure. However, dealer sentiment is neutral to caution.
However dealer sentiment is neutral to cautious.
Speaker 3: In Asia Pacific, dealer sentiment is most positive in Australia, driven by demand from the mining industry.
In Asia Pacific dealer sentiment as most positive in Australia, driven by demand from the mining industry.
Other positives include infrastructure spending in Japan, and shipbuilding in Korea, and Japan, somewhat offset by softness from China's steel mills and manufacturing sectors.
Speaker 3: Other positives include infrastructure spending in Japan and shipbuilding in Korea and Japan. Someone offset by softness from China's steel mills and manufacturing sectors. Overall, channel image...
Overall channel inventory is appropriate.
Paul Sternlieb: While a send remains an important part of transforming the company, given that we are well ahead of schedule, we intend to leverage the power of a send to transition to a focus on continuous improvement. As noted in our earnings release, we have issued our guidance for fiscal 2024 keeping it on the fairly cautious side. This is due to the continued uncertainty in the macro environment. However, we firmly believe Enerpac is well positioned to continue to outperform the industry and gain share based on the success of our four-pillar growth strategy, which includes expansion in key vertical markets, digital transformation, customer-driven innovation, and expansion in Asia of Pacific.
Speaker 3: In the Americas, sales growth was broad-based with particular strength in infrastructure and wind market.
In the Americas sales growth was broad based with particular strength in infrastructure and wind markets.
Speaker 3: Channel inventory is stable. However, our dealers have expressed some caution. With a slowdown in the rate of growth due to general economic conditions.
Channel inventory gets stable. However, our dealers have expressed some caution with a slowdown in the rate of growth due to general economic conditions.
In the Mena region investment in oil and gas and renewable energy projects remains strong overall dealer sentiment is neutral and inventory is appropriate.
Speaker 1: In the MENAC region, investment in oil and gas and renewable energy projects remain strong. Overall dealer sentiment is neutral and inventory is appropriate.
Speaker 4: We know these acronyms for our regions are mouthful. They have also added an unnecessary layer in terms of how we manage the company from a commercial perspective.
We know these acronyms for our regions are a mouthful. They've also added an unnecessary layer in terms of how we manage the company from a commercial perspective bill.
Speaker 4: Beginning in fiscal 24, we streamlined our geographic reporting and consolidated it into three regions.
Beginning in fiscal 'twenty, four we streamline our geographic reporting and consolidated into three regions Americas, EMEA, which includes Europe , Middle East and Africa and Asia Pacific.
Speaker 4: America's Amia, which includes Europe , Middle East and Africa and Asia Pacific.
Speaker 4: As we mentioned last quarter, we welcomed Phil Jefferson to lead our new Amia region.
As we mentioned last quarter, we welcomed fill Jefferson to lead our new EMEA region.
Tony Colucci: I'll let Tony review our fiscal 2023 performance and cover our guidance for fiscal 2024. Then I'll return with more details about a send and our growth strategy and the ongoing benefits to the top and bottom line.
Phil joins us with an extensive background, leading industrial businesses, including senior roles at Motorola solutions and most recently Honeywell International we are pleased to have him onboard.
Speaker 4: Phil joins us with an extensive background leading industrial businesses, including senior roles at Motorola Solutions and most recently Honeywell International. We are pleased to have him on board.
As you can see on slide seven showing the 'twenty 'twenty to 'twenty to 'twenty three period, we have consistently grown revenue and greatly improved profitability.
Tony Colucci: Tony, thanks and good morning. As Paul said, Enerpac enjoyed salad growth on the top and bottom line in fiscal 2023. Core revenue, which excludes the vestitures and the impact of foreign exchange, expanded 8% for fiscal 2022. On a core basis, product revenues expanded 12% year-over-year. At the same time, service revenue declined at 7%, due to the previously discussed implementation of a more selective quoting process, particularly in the Middle East region. We anticipate we will see this impact for another two quarters, as we began implementing this process in the back half of fiscal 2023.
Speaker 4: As you can see on slide 7, showing the 2020 to 2023 period, we have consistently grown revenue and greatly improved profitability.
Speaker 4: In fiscal 23, gross margins expanded to 49.3% from 46.5% in fiscal 2022, an increase of 280 bases.
In fiscal 'twenty, three gross margins expanded to 49, 3% from 46, 5% in fiscal 2022, an increase of 280 basis points.
Speaker 4: This was driven in part by the success of our lean initiatives and our continued focus on operational action.
This was driven in part by the success of our lean initiatives and our continued focus on operational excellence.
We are excited about the operational improvement plans, we have in place and the broad operations team engaged to lead and implement them.
Speaker 4: We are excited about the operational improvement plans we have in place and the broad operations team engage to lead and implement them.
Speaker 4: Similarly, our initiatives to improve operational efficiency and productivity in SG&A prove beneficial.
Similarly, our initiatives to improve operational efficiency and productivity and SG&A proved beneficial.
Tony Colucci: Within the industrial tools and service segment, three of our four geographic regions, America's Asia Pacific and SSA, which includes Europe, Sub-Saharan Africa and India, generated double digit growth in fiscal 2023. As for the Meenak region, which includes Middle East, North Africa, and Caspian, revenue declined in the mid-teens, as expected, as a result of the just mentioned selective exit from certain projects in our service business. The SSA region enjoyed healthy demand from wind, rail, and infrastructure.
Adjusted SG&A expense, which excludes ascend and other one time charges charges for both periods.
Speaker 4: Adjusted SGNA expense, which excludes a send and other one time charges from both periods, improves 550 basis points to 28.2%.
<unk> 550 basis points to 28, 2%.
Speaker 4: Our goal is to further improve the efficiency of our SGNA spend as a percentage of sales and over time bring us in line with best in class and dust reals.
Our goal is to further improve the efficiency of our SG&A spend as a percentage of sales and over time bring us in line with best in class Industrials.
For fiscal 'twenty, three adjusted EBITDA was $136 million, an increase of 65% year over year with that adjusted EBITDA margins expanded from 14, 5% in fiscal 2022 to 22, 8% in fiscal 'twenty three.
Speaker 4: For Fiscal 23, Adjusted EBITDA was $136 million, an increase of 65% year-over-year. With that, Adjusted EBITDA margins expanded from 14.5% in Fiscal 2022 to 22.8% in Fiscal 23.
Tony Colucci: However, dealer sentiment is neutral to cautious. In Asia Pacific, dealer sentiment is most positive in Australia, driven by demand from the mining industry. Other positives include infrastructure spending in Japan and shipbuilding in Korea and Japan, somewhat offset by softness from China's steel mills and manufacturing sectors. Overall, channel inventory is appropriate. In the Americas, sales growth was broad-based, with particular strength in infrastructure and wind markets. Channel inventory is stable, however, our dealers have expressed some caution with a slowdown in the rate of growth due to general economic conditions.
Speaker 4: Deluted earnings per share from continuing operations totaled 94 cents in fiscal 23 up from 33 cents in fiscal 22.
Diluted earnings per share from continuing operations totaled <unk> 94 in fiscal 'twenty three up from 33 in fiscal 'twenty two.
Speaker 4: Adjusted earnings per share increased approximately 80% to $1.45 compared to $0.81 in the year ago period.
Adjusted earnings per share increased approximately 80% to $1 45.
Compared to 81 in the year ago period.
For the year, we generated free cash flow of $70 million driven by strong EBITDA growth and working capital improvements, partially offset by one time, our sand costs.
Speaker 4: For the year, we generated free cash flow of $70 million, driven by strong EBITDA growth and working capital improvements, partially offset by one time a SONCOS.
Speaker 4: This is a substantial increase over fiscal 22's free cash flow of $44 million.
This is a substantial increase over fiscal 'twenty two's free cash flow of $44 million.
Regarding the fourth quarter of fiscal 23 total reported revenue increased 6%, while core revenue expanded 9% over prior year, we continue to improve profitability with an adjusted EBITDA margin of 24, 9% in the fourth quarter of fiscal 'twenty three.
Speaker 4: Regarding the fourth quarter of fiscal 23, total reported revenue increased 6%. While core revenue expanded 9% over a prior year, we continue to improve profitability with an adjusted EBIT margin of 24.9% in the fourth quarter of fiscal 23, up from 20.1% in the year ago period.
Tony Colucci: In the Meenak region, investment in oil and gas and renewable energy projects remain strong. Overall, dealer sentiment is neutral, and inventory is appropriate. We know these acronyms for our region are mouthful. They have also added an unnecessary layer in terms of how we manage the company from a commercial perspective.
From 21% in the year ago period.
Speaker 4: While we expect to continue to enhance profitability towards our goal of 25% as we exit fiscal 24, keep in mind that there is some seasonality. As higher volume in the back half of the fiscal year, completely translates to the higher margin.
While we expect to continue to enhance profitability towards our goal of 25% as we exit fiscal 'twenty four keep in mind that there is some seasonality as higher volume in the back half of the fiscal year typically translates to higher margins.
Tony Colucci: Beginning in Cisco 24, we streamline our geographic reporting and consolidate it into three regions. Americas, Amia, which includes Europe, Middle East, and Africa, and Asia Pacific. As we mentioned last quarter, we welcomed Phil Jefferson to lead our new Amia region. Phil joins us with an extensive background leading industrial businesses, including senior roles at Motorola Solutions and most recently Honeywell International. We are pleased to have him on board.
Speaker 4: As we have discussed, our strong liquidity and balance sheet support are capital allocation priorities, including internal investments to drive our organic growth, also to execute on our STEM transformation program, along with opportunistic share repurchases, and the capacity to pursue strategic acquisition.
As we have discussed our strong liquidity and balance sheet support our capital allocation priorities, including internal investments to drive our organic growth also to execute on our transformation program, along with opportunistic share repurchases and the capacity to pursue strategic acquisitions.
Tony Colucci: As you can see on slide 7, showing the 2020 to 2023 period, we have consistently grown revenue and greatly improved profitability. In fiscal 23, gross margins expanded to 49.3% from 46.5% in fiscal 2022, an increase of 280 basis points. This was driven in part by the success of our lean initiatives and our continued focus on operational excellence. We are excited about the operational improvement plans we have in place and the broad operations team engaged to lead and implement them.
Speaker 4: At your end fiscal 23, our leverage was 0.6 times adjusted EBITDA, remaining well below our target range of 1.5 to 2.5 times, and providing ample liquidity to pursue meaningful capital deployment.
At year end fiscal 'twenty three our leverage was 0.6 times adjusted EBITDA remaining well below our target range of one five to two five times and providing ample liquidity to pursue meaningful capital deployment.
Speaker 4: During fiscal 23, we repurchased 2.2 million shares, returning $58 million to shareholders.
During fiscal 'twenty, three we repurchased two 2 million shares returning $58 million to shareholders.
There are 4 million shares remaining under the current authorization.
Speaker 4: There are 4 million shares remaining under the current authorization.
As noted in our press release in July we completed the sale of the Cortland industrial business further sharpening <unk> pure play focus.
Speaker 4: As noted in our press release in July , we completed the sale of the Cortland Industrial business, further sharpening Enterpex Pure Play Focus.
Tony Colucci: Similarly, our initiatives to improve operational efficiency and productivity in SGNA prove beneficial. Adjusted SGNA expense, which excludes a send and other one-time charges from both periods, improved 550 basis points to 28.2%. Our goal is to further improve the efficiency of our SGNA spend as a percentage of sales, and over time bring us in line with best-in-class industrials. For fiscal 23, adjusted EBITDA was $136 million, an increase of 65% in year-to-year. With that, adjusted EBITDA margins expanded from 14.5% in fiscal 2022 to 22.8% in fiscal 23.
Speaker 4: For modeling purposes, Courtland Industrial contributed approximately $23 million to revenue in Fiscal 23 with minimal impact on EBITDA.
For modeling purposes, Cortland industrial contributed approximately $23 million to revenue in fiscal 'twenty, three with minimal impact on EBITDA.
Looking ahead, our guidance for fiscal 2024 reflects a fair degree of caution given the continued uncertainty in the macro environment.
Speaker 4: Looking ahead, our guidance for fiscal 2024 reflects a fair degree of caution given the continued uncertainty in the macro environment.
Speaker 4: Entering the first quarter of fiscal 24, orders declined in September , but rebounded thus far in October , leaving us about flat year over year through the first half of the quarter.
During the first quarter of fiscal 'twenty four orders declined in September but rebounded thus far in October , leaving us about flat year over year through the first half of the quarter.
With that in mind, we anticipate net sales of $590 million to $605 million with underlying core growth of approximately 2% to 4%.
Tony Colucci: Deluted earnings per share from continuing operations totaled 94 cents in fiscal 23, up from 33 cents in fiscal 22. Adjusted earnings per share increased approximately 80% to $1.45 compared to 81 cents in the year-go period. For the year, we generated free cash flow of $70 million, driven by strong EBITDA growth and working capital improvements, partially offset by one-time a send cost. This is a substantial increase over fiscal 22's free cash flow of $44 million.
For the year, we expect expect growth in both product and service revenues.
Speaker 4: For the year, we expect growth in both product and service revenue.
Speaker 4: As a note, when we talk about core growth in fiscal 24, we've deducted revenues from the devastated Portland industrial business from the baseline for a true apples to apples comparison.
As a note when we talk about core growth in fiscal 'twenty four we've deducted revenues from the divested Cortland industrial business from the baseline for a true apples to apples comparison.
Longer term, we continue to target the goals, we laid out at our Investor Day in November 2022, with a 6% to 7% organic revenue CAGR.
Speaker 4: Longer term, we continue to target the goals we laid out at our investor day in November 2022 with a 6 to 7% organic revenue keger over the planning horizon through fiscal 2026.
Over the planning horizon through fiscal 2026.
We are forecasting adjusted EBITDA of $142 million to $152 million.
Speaker 4: We are forecasting adjusted EBITDA of $142 million to $152 million.
Tony Colucci: Regarding the fourth quarter of fiscal 23, total reported revenue increased 6%, while core revenue expanded 9% over a prior year. We continued to improve profitability with an adjusted EBITDA margin of 24.9% in the fourth quarter of fiscal 23, up from 20.1% in the year-go period. While we expect to continue to enhance profitability towards our goal of 25% as we exit fiscal 24, keep in mind that there is some seasonality as higher volume in the back half of the fiscal year completely translates to higher margins.
Speaker 4: And at the midpoint, that represents your rear growth of 8%.
And at the midpoint that represents year over year growth of 8%.
Speaker 4: but they full year adjusted even a margin of 24.6%.
With a full year.
Adjusted EBITDA margin of 24, 6%.
We expect to generate relatively flat free cash flow of $60 million to $70 million in fiscal 'twenty four.
Speaker 4: We expect to generate relatively flat free cash flow of 60 to 70 million dollars in fiscal 24.
Capex is expected to be higher with investments in the range of $12 million to $17 million compared to $9 4 million in fiscal 2023.
Speaker 4: CAP-X is expected to be higher with investments in the range of $12 to $17 million compared to $9.4 million in fiscal 2023. As we invest in manufacturing equipment upgrade.
As we invest in manufacturing equipment upgrades.
Tony Colucci: As we have discussed, our strong liquidity and balance sheet support are capital allocation priorities, including internal investments to drive our organic growth, also to execute on our send transformation program, along with opportunistic share repurchases and the capacity to pursue strategic acquisitions. At your end of fiscal 23, our leverage was 0.6 times adjusted EBITDA, remaining well below our target range of 1.5 to 2.5 times and providing ample liquidity to pursue meaningful capital deployment. During fiscal 23, we repurchased 2.2 million shares, returning $58 million to shareholders. There are 4 million shares remaining under the current authorization.
Speaker 4: and automation to support our continued growth, and efficiency enhanced.
And automation to support our continued growth and efficiency enhancements.
Speaker 4: In addition, cash taxes are expected to increase to normal levels, partially offset by lower ascended related costs.
In addition, cash taxes are expected to increase to normal levels, partially offset by lower <unk> related costs.
Speaker 4: excluding one time charges associated with the Ascent Program and discontinued operations. Physical 24 free cash flow conversion would be approximately 100%.
Excluding one time charges associated with the <unk> program and discontinued operations fiscal 'twenty four free cash flow conversion would be approximately 100%.
As you can see from this slide we have included our modeling assumptions, including interest expense.
Speaker 4: As you can see from this slide, we have included our modeling assumptions, including interest expense.
Speaker 4: Appreciation and amortization along with adjusted tax rates.
Depreciation and amortization along with adjusted tax rate.
As Paul said, we effectively achieved the vast majority of our targeted benefit from <unk> in fiscal 2023.
Speaker 4: As Pa said, we effectively achieved the vast majority of our targeted benefit from a Senate fiscal 2023.
Going forward as we transitioned to a continuous improvement program, which leverages all the rigor and processes from our Sun, we will no longer break out specific benefits.
Speaker 4: Going forward as we transition to a continuous improvement program, which leverages all the rigor and processes from a Sun, we will no longer break out a Sun-specific benefit.
Tony Colucci: As noted in our press release in July, we completed the sale of the Corp. Industrial Business, further sharpening Enerpac's pure play focus. For modeling purposes, Corp. Industrial contributed approximately $23 million to revenue in fiscal 23, with minimal impact on EBITDA.
Speaker 4: As for the expense out of a send, since the inception of the program, we have booked expenses totaling approximately $60 million.
As for the expense side of ascend since inception of the program, we have booked expenses totaling approximately $60 million.
That leaves us with $10 million to $15 million remaining and anticipated spend in fiscal 2024, which includes $3 million to $5 million of restructuring charges.
Tony Colucci: Looking ahead, our guidance for fiscal 2024 reflects a fair degree of caution given the continued uncertainty in the macro environment. Entering the first quarter of fiscal 24, orders declined in September, but rebounded thus far in October, leaving us about flat year over year through the first half of the quarter. With that in mind, we anticipate net sales of $590 million to $605 million, with underlying core growth of approximately 2 to 4%.
With that let me turn the call back to Paul.
Thanks, Tony as I said at the top of the call. We're very pleased with the solid growth generated in fiscal 'twenty three a reflection of our ambitious growth strategy.
Speaker 3: Thanks Tony. As I said at the top of the call, we're very pleased with the solid growth generated in fiscal 23, a reflection of our ambitious growth strategy, already yielding results, and centered around four key pillars.
Already yielding results and centered around four key pillars.
Our first pillar involves expansion in targeted vertical markets wind rail infrastructure and industrial MRO not only do these large fragmented markets provide exciting opportunities for growth and market share expansion. There are also benefiting from solid secular dynamic.
Tony Colucci: For the year, we expect growth in both product and service revenues. As a note, when we talk about core growth in fiscal 24, we've deducted revenues from the devastated Corp. Industrial Business from the baseline for a true apples to apples comparison.
Speaker 3: They're also benefiting from solid, secular dynamics, including the infrastructure spending bill in the U.S. and the global transition to clean energy.
<unk>, including the infrastructure spending bill in the U S and the global transition to clean energy.
Tony Colucci: Longer term, we continue to target the goals we laid out at our investor day in November 2022, with a 6 to 7% organic revenue kegger, over the planning horizon, through fiscal 2026. We are forecasting a justity of $142 million to $152 million. And at the midpoint, that represents your rear growth of 8%. With a full year adjusted even a margin of 24.6%. We expect to generate relatively flat free cash flow of 60 to $70 million in fiscal 24.
Speaker 3: Just to share a few examples. In the US within the past few months, the administration has approved the largest ever offshore wind project.
Just to share a few examples in the U S. Within the past few months. The administration has approved the largest ever offshore wind project.
Speaker 3: In addition, the Department of Transportation has opened applications for nearly $10 billion in funding for the nation's bridge.
In addition, the department of Transportation has opened applications for nearly $10 billion in funding for the nation's bridges.
Speaker 3: Moreover, the Federal Railroad Administration announced a new round of rail infrastructure funding of $1.4 billion for 70 projects.
Moreover, the Federal Railroad administration announced a new round of rail infrastructure funding of $1 $4 billion for 70 projects.
Speaker 3: These initiatives all represent a significant expansion in funding levels for wind, rail, and infrastructure spend, and a favorable growth environment for ENERPASS.
These initiatives all represent a significant expansion in funding levels for wind rail and infrastructure spend and a favorable growth environment for <unk>.
Tony Colucci: CAP-X is expected to be higher with investments in the range of $12 to $17 million, compared to $9.4 million in fiscal 2023. As we invest in manufacturing equipment upgrades and automation to support our continued growth and efficiency enhancements. In addition, cash taxes are expected to increase to normal levels, partially offset by lower ascended related costs. Excluding one time charges associated with the Ascent Program and discontinued operations, fiscal 24 free cash flow conversion would be approximately 100%. As you can see from this slide, we have included our modeling assumptions, including interest expense, appreciation and amortization, along with adjusted tax rate.
Speaker 3: Additionally, we believe the reshoring of industrial capacity, which appears to be a durable macro trend, provides a positive tailwind for interpac.
Additionally, we believe the re shoring of industrial capacity, which appears to be a durable macro trend provides a positive tailwind for <unk>.
Speaker 3: Our second pillar is digital transformation. This includes both our digital connectivity for our products through the implementation of InterPAC Connect, our proprietary IoT solution.
Our second pillar is digital transformation. This includes both our digital connectivity for our products through the implementation of <unk> connect our proprietary Iot solution.
Speaker 3: as well as our robust digital marketing and e-commerce programs.
As well as a robust digital marketing and E Commerce program.
Speaker 3: We believe our digital strategy will enhance Interpax's ability to acquire and sustain long-term customer relationships.
We believe our digital strategy will enhance <unk> ability to acquire and sustain long term customer relationships.
In fiscal 2023, we nearly tripled the level of sales through the E Commerce channel and significantly beat our internal plan.
Speaker 3: In fiscal 2023, we nearly tripled the level of sales through the e-commerce channel and significantly beat our internal plans.
Tony Colucci: As Paul said, we effectively achieved the vast majority of our targeted benefit from Ascent and fiscal 2023. Going forward, as we transition to a continuous improvement program, which leverages all the rigor and processes from Ascent, we will no longer break out Ascent-specific benefits, as for the expense set of a send, since the inception of the program, we have booked expenses totaling approximately $60 million. That leaves us with $10 to $15 million remaining in a anticipated spend in fiscal 2024, which includes $3 to $5 million of restructuring charges.
And we're excited about the progress we continue to make in this area in fiscal 'twenty four and beyond.
Speaker 3: And we're excited about the progress we continue to make in this area in fiscal 24 and beyond.
Speaker 3: Our third growth pillar is our customer-driven innovation program.
Our third growth pillar is our customer driven innovation program over the past two years, we have substantially reconfigured our new product development program with an increased level of customer insight and discipline in our processes.
Speaker 3: Over the past two years, we've substantially reconfigured our new product development program with an increased level of customer insight and discipline in our process.
Most importantly, the product roadmap is now well aligned with our four key vertical markets and all aimed at solving our customers' most critical issues, while generating strong ROI for inter pack.
Speaker 3: Most importantly, the product row map is now well-lined with our 4K vertical mark.
Speaker 3: And all aimed at solving our customers most critical issues while generating strong ROI for Interpen.
Paul Sternlieb: With that, let me turn the call back to Paul. Thanks, Tony.
Finally, we are implementing an exciting set of initiatives to expand <unk> presence in Asia Pacific.
Speaker 3: Finally, we're implementing an exciting set of initiatives to expand InterPax presence in Asia Pacific.
Paul Sternlieb: As I said at the top of the call, we're very pleased with the solid growth generated in fiscal 23, a reflection of our ambitious growth strategy, already yielding results, and centered around four key pillars. Our first pillar involves expansion in targeted vertical markets, wind, rail, infrastructure, and industrial MRO, not only do these large, fragmented markets provide exciting opportunities for growth and market share expansion. There are also benefiting from solid, secular dynamics, including the infrastructure spending bill in the U.S., and the global transition to clean energy.
Speaker 3: We believe we are currently under penetrated in the support and geography and as such have substantial opportunities for growth.
We believe we are currently underpenetrated in this important geography, and as such have substantial opportunities for growth, especially outside of China, which is a relatively small part of our business in the region today.
Speaker 3: especially outside of China, which is a relatively small part of our business in the region.
Speaker 3: One of our strategies in Asia Pacific includes the rollout of our second brand, providing a mid-tier offering to reach a relatively untapped segment, and expand our addressable market. These products offer customers high quality and good value, while delivering Interpacked Calibre Marches.
One of our strategies and Asia Pacific includes the rollout of our second brand, providing a mid tier offering to reach a relatively untapped segment and expand our addressable market. These products offer customers high quality and good value, while delivering <unk> caliber margins we are.
Speaker 3: We are in the process of rolling this out through existing as well as new distributor channels in Asia Pacific.
Paul Sternlieb: Just to share a few examples, in the U.S., within the past few months, the administration has approved the largest ever offshore wind project. In addition, the Department of Transportation has opened applications for nearly $10 billion in funding for the nation's bridges. Moreover, the Federal Railroad Administration announced a new round of rail infrastructure funding of $1.4 billion for 70 projects. These initiatives all represent a significant expansion in funding levels for wind, rail, and infrastructure spend, and a favorable growth environment for ENERPAC. Additionally, we believe the reshoring of industrial capacity, which appears to be a durable macro trend, provides a positive tailwind for ENERPAC.
In the process of rolling this out through our existing as well as new distributor channel in Asia Pacific.
Okay.
Speaker 3: Beyond these opportunities for organic growth, we are pursuing an M&A strategy focused on solving customer needs within our targeted vertical markets, while staying true to our mission of helping customers to execute complex, often has their jobs safely and efficient.
Beyond these opportunities for organic growth, we are pursuing an M&A strategy focused on solving customer needs within our targeted vertical markets, while staying true to our mission of helping customers to execute complex often hazardous jobs safely and efficiently.
We have a disciplined approach with strict criteria for financial returns and strategic fit.
Speaker 3: We have a disciplined approach with direct criteria for financial returns and strategic fit.
Speaker 3: We recently recruited a highly experienced head of corporate development to lead our M&A program and coordinate the identification, cultivation, analysis, acquisition and integration of companies to create value for our shareholders.
We recently recruited a highly experienced head of corporate development to lead our M&A program and coordinate the identification cultivation analysis acquisition and integration of companies to create value for our shareholders.
Speaker 3: With a dedicated leader for this important element of Interpax growth now on board, our M&A pipeline has grown more comprehensive and robust. And we are excited about the opportunities that we are evaluating.
Paul Sternlieb: Our second pillar is digital transformation. This includes both our digital connectivity for our products through the implementation of ENERPAC Connect, our proprietary IoT solution, as well as our robust digital marketing and e-commerce program. We believe our digital strategy will enhance ENERPAC ability to acquire and sustain long-term customer relationships. In fiscal 2023, we nearly triple the level sales through the e-commerce channel and significantly beat our internal plan. And we're excited about the progress we continue to make in this area in fiscal 24 and beyond.
With a dedicated leader for this important element of <unk> growth now onboard our M&A pipeline has grown more comprehensive and robust and we are excited about the opportunities that we are evaluating.
In September we acquired the license brand and related intellectual property for track tools.
Speaker 3: In September , we acquired the license, brand, and related intellectual property for a tract.
While it's not material in terms of near term financial impact. It reflects our strategy to provide integrated solutions for railroads specifically the track tool system for rail maintenance has the advantage of minimizing or eliminating service disruptions, while providing safer operation than traditional live.
Speaker 3: Specifically, the track tool system for rail maintenance has the advantage of minimizing or eliminating service disruption.
Speaker 3: while providing safer operation and traditional lifting shifts.
<unk> systems.
Speaker 3: Track Tools also adds established customer relationships and a solution that we can sell to the global market.
Trac tools also as established customer relationships any solution that we can sell to the global marketplace.
Paul Sternlieb: Our third growth pillar is our customer-driven innovation program. Over the past two years, we've substantially reconfigured our new product development program with an increased level of customer insight and discipline in our processes. Most importantly, the product roadmap is now well-lined with our four key vertical markets, and all aimed at solving our customers most critical issues while generating strong ROI for ENERPAC.
Now, let me switch gears briefly to talk about the success of our ascend transformation program.
Speaker 3: Now, let me switch gears briefly to talk about the success of our S10 transformation program.
Speaker 3: In terms of our go-to-market strategy, we've re-aligned our resources to better match sales opportunities and focus on our 4-key vertical markets.
In terms of our go to market strategy, we've realigned our resources to better match sales opportunities and focus on our four key vertical markets.
Speaker 3: A recent note, we have expanded our reach and rail through the addition of several new business development resources.
A recent note we have expanded our reach in rail through the addition of several new business development resources.
Speaker 3: We've also targeted demand generation activities to expand our customer universe in rail, focused on industry trade shows, social media, and follow up on government project funding.
Paul Sternlieb: Finally, we are implementing an exciting set of initiatives to expand Enerpac's presence in Asia-Pacific. We believe we are currently under-penetrated in the support and geography, and as such have substantial opportunities for growth, especially outside of China, which is a relatively small part of our business in the region today. One of our strategies in Asia-Pacific includes the rollout of our second brand providing a mid-tier offering to reach a relatively untapped segment and expand our addressable market. These products offer customers high quality and good value while delivering Enerpac caliber margins. We are in the process of rolling this out through existing as well as new distributor channels in Asia-Pacific.
We've also targeted demand generation activities to expand our customer universe in rail focused on industry Tradeshows, social media and follow up on government project funding.
Speaker 3: We have also implemented numerous initiatives around improving operational excellence and production efficiency.
We have also implemented numerous initiatives around improving operational excellence and production efficiency.
Speaker 3: We are continuing our SKU rationalization initiatives and we've set ambitious goals for driving more productivity in manufacturing, logistics, and sources.
We're continuing our SKU rationalization initiatives and we have set ambitious goals for driving more productivity and manufacturing logistics and sourcing while also improving lead times and on time delivery performance. We made good progress reducing our past due backlog in fiscal 2012.
Speaker 3: while also proving lead times and on time delivery perform.
Speaker 3: We made good progress reducing our past due backlog in fiscal 2023 as our supply chain started to normalize.
Three as our supply chain started to normalize.
As Tony discussed our operational improvement efforts have already contributed to our solid expansion in gross margins.
Speaker 3: As Tony discussed, our operational improvement efforts have already contributed to a solid expansion in gross margin.
Paul Sternlieb: Beyond these opportunities for organic growth, we are pursuing an M&A strategy focused on solving customer needs within our targeted vertical markets, while staying true to our mission of helping customers to execute complex, often has their jobs safely and efficiently. We have a discipline approach with strict criteria for financial returns and strategic fit. We recently recruited a highly experienced head of corporate development to lead our M&A program and coordinate the identification, cultivation, analysis, acquisition, and integration of companies to create value for our shareholders. With a dedicated leader for this important element of Enerpac's growth now on board, our M&A pipeline has grown more comprehensive and robust, and we are excited about the opportunities that we are evaluating.
Speaker 3: We're also executing a series of SG&A productivity initiatives employing technology to create a leaner and more agile organization.
We're also executing a series of SG&A productivity initiatives employing technology to create a leaner and more agile organization.
Speaker 3: Similarly, these efforts have already enabled us to substantially reduce SGNA as a percentage of sales.
Similarly, these efforts have already enabled us to substantially reduce SG&A as a percentage of sales.
A trend that we expect to continue as we work toward achieving best in class levels in the industrial sector over time.
Speaker 3: trends that we expect to continue as we work toward achieving best-in-class levels in the industrial sector over time.
Speaker 3: Of course, none of our progress would be possible without the hard work and commitment of interpacket toys around the globe.
Of course, none of our progress would be possible without the hard work and commitment of <unk> employees around the globe.
Speaker 3: They are the driving force behind our transformation to a premier industrial tools and service business.
They are the driving force behind our transformation to a premier industrial tools and service business.
Speaker 3: I'd like to thank all our employees for their contributions in Fiscal 2023, which enabled us to deliver strong results in the next 20 years.
I would like to thank all our employees for their contributions in fiscal 2023, which enabled us to deliver strong results as a team.
Thank you for joining us this morning for our year end call as always Travis will be available to take any follow up questions and for those who are interested we will be attending the Baird Global Industrial conference on November eight in Chicago.
Paul Sternlieb: In September, we acquired a license, brand, and related intellectual property for track tools. While it's not material in terms of near-term financial impact, it reflects our strategy to provide integrated solutions for railroads.
Speaker 3: Thank you for joining us this morning for a year end call. As always, Travis will be available to take any fall questions. And for those who are interested, we'll be attending the Baird Global Industrial Conference on November 8 in Chicago. Thank you. Thank you.
Paul Sternlieb: Specifically, the track tool system for rail maintenance has the advantage of minimizing or eliminating service disruptions while providing safer operation than traditional lifting systems. Track tools also adds established customer relationships and a solution that we can sell to the global marketplace.
And have a good day.
Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect at this time enjoy the rest of your day.
Speaker 1: Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect at this time. Enjoy the rest of the session.
Speaker 5: Joel
Okay.
Sure.
Okay.
[music].
Paul Sternlieb: Now, let me switch gears briefly to talk about the success of our S10 transformation program. In terms of our go-to-market strategy, we've re-aligned our resources to better match sales opportunities and focus on our four key vertical markets. A recent note, we have expanded our reach and rail through the addition of several new business development resources. We've also targeted demand generation activities to expand our customer universe in rail, focused on industry trade shows, social media, and follow-up on government project funding. We have also implemented numerous initiatives around improving operational excellence and production efficiency.
Yes.
[music].
Paul Sternlieb: Agency. We are continuing our skew rationalization initiatives and we've set ambitious goals for driving more productivity in manufacturing, logistics, and sourcing while also improving lead times and on time delivery performance. We made good progress reducing our past due backlog in fiscal 2023 as our supply chain started to normalize. As Tony discussed, our operational improvement efforts have already contributed to a solid expansion in gross margins. We're also executing a series of SGNA productivity initiatives employing technology to create a leaner and more agile organization. Similarly, these efforts have already enabled us to substantially reduce SGNA as a percentage of sales. A trend that we expect to continue as we work toward achieving best-in-class levels in the industrial sector over time.
Paul Sternlieb: Of course, none of our progress would be possible without the hard work and commitment of Enerpac employees around the globe. They are the driving force behind our transformation to a premier industrial tools and service business. I'd like to thank all our employees for their contributions in fiscal 2023, which enabled us to deliver strong results as a team.
Paul Sternlieb: Thank you for joining us this morning for a year-end call.
Travis Williams: As always, Travis will be available to take any fall questions and for those who are interested, we'll be attending the Baird Global Industrial Conference on November 8 in Chicago. Thank you and have a good day. Thank you. This does include today's teleconference. We appreciate your participation. You may disconnect at this time. Enjoy the rest of your day.