Q4 2024 Enerpac Tool Group Corp Earnings Call

Operator: Ladies and gentlemen, thank you for standing by. Welcome to Enerpac Tool Group's fourth quarter fiscal 2024 earnings conference call. As a reminder, this conference is being recorded October 16th, 2024.

Ladies and gentlemen, thank you for standing by welcome to enter Pactual groups fourth quarter fiscal 2024 earnings Conference call. As a reminder, this conference is being recorded October 16th 2024. It is now my pleasure to turn the conference over to Travis Williams Senior director of Investor.

Travis Williams: It is now my pleasure to turn the conference over to Travis Williams, Senior Director of Investor Relations.

Speaker Change: <unk>. Please go ahead Mr. Williams.

Travis Williams: Please go ahead, Mr. Williams. Thank you, operator. Good morning, and thank you for joining us for Enerpac Tool Group's year-end fiscal 2024 earnings fall. On the call today to present the company's results are Paul Sternlieb, President and Chief Executive Officer, and Shannon Burns, our Interim Principal Financial Officer.

Travis Williams: Thank you operator, good morning, and thank you for joining us for <unk> this year.

Travis Williams: Year end fiscal 2024 earnings call on the call today to present, the company's results are Paul Stanley, President and Chief Executive Officer, and Shannon Burns, our interim principal financial officer.

Travis Williams: The slides referenced on today's call are available in the Investor Relations section of the company's website, which you could download and follow along. A recording of today's call will also be made available on our website.

Travis Williams: The slides referenced on today's call are available on the Investor Relations section of the company's website, which you can download the ball along a recording of today's call will also be made available on our website.

Travis Williams: Today's call will reference non-gap measures. You could find a reconciliation of GAAP to non-GAAP measures in the press release issued yesterday.

Today's call will reference non-GAAP measures you can find a reconciliation of GAAP to non-GAAP measures in the press release issued yesterday.

Travis Williams: Our comments will also include forward-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 SEC filing.

Speaker Change: Our 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 it over to Paul.

Paul Sternlieb: Now I will turn it over to Paul.

Paul Sternlieb: Thanks, Travis, and good morning. For the full year, Enerpac's financial performance came in essentially as expected. Although our top-line growth decelerated over the course of the year, we believe we continue to outpace the very soft general industrial marketplace, as evidenced by continued positive revenue growth.

Thanks, Travis and good morning for the full year <unk> financial performance came in essentially as expected.

Paul Stanley: Although our topline growth decelerated over the course of the year. We believe we continue to outpace the very soft general industrial marketplace as evidenced by continued positive revenue growth.

Paul Sternlieb: As you can see in slide three, Shannon will elaborate on organic revenue grew 2.2% in fiscal 2024, including 2.7% growth in our core industrial tools and services or IT and F business. Moreover, because of our continued ability to capture efficiencies at the gross profit and SGNA lines, we enjoyed further expansion in profitability, achieving adjusted evadigro of 8%, representing a margin of 25%.

Paul Stanley: As you can see on slide three and Shannon will elaborate on organic revenue grew two 2% in fiscal 2024, including two 7% growth in our core industrial tools and services or <unk> business.

Paul Stanley: Moreover, because of our continued ability to capture efficiencies at the gross profit and SG&A lines. We enjoyed further expansion and profitability achieving adjusted EBITDA growth of 8% representing a margin of 25%.

Shannon Burns: Let me turn the call over to Shannon to elaborate on our financial performance. You will also introduce our initial guidance for Fiscal 2025.

Speaker Change: Let me turn the call over to Shannon to elaborate on our financial performance. We will also introduce our initial guidance for fiscal 2025.

Paul Sternlieb: Following that, I will speak about geographic trends, provide some color on targeted vertical markets, and of course talk about our recent acquisition of DTA.

Speaker Change: Following that I'll speak about geographic trends provide some color on targeted vertical markets and of course talk about our recent acquisition of DTA Shannon.

Shannon Burns: Shannon, thanks, Paul.

Shannon Burns: Thanks, Paul.

Shannon Burns: On slide four, we highlight our full year fiscal 2024 financial results. For the year, we generated organic revenue growth of 2.7% in our industrial tools and services business. Within ITS, organic product and service revenue grew 1.7% and 6.6%, respectively. Due to a 9.5% decline in Courtland by a medical, total organic growth was 2.2% in fiscal 2024. However, as Paul will discuss, we were pleased to see Courtland Medical resume to year-over-year growth in the fourth quarter. Due to the sales of Courtland Industrial in late fiscal 2023, total net sales for the company declined 1.5% for the year.

Shannon Burns: On slide four we highlight our full year fiscal 2020 for financial results for the year, we generated organic revenue growth of two 7% and our industrial tools and services business within Ics organic product and service revenue grew one 7% and six 6% respectively.

Shannon Burns: Due to a nine 5% decline of Cortland biomedical total organic growth was two 2% in fiscal 2024. However, as Paul will discuss we are pleased to see Cortland medical resumed year over year growth in the fourth quarter.

Shannon Burns: Due to the sale of Cortland industrial in late fiscal 2023 total net sales for the company declined one 5% for the year.

Shannon Burns: Slide five reflects the continued progress we've made in improving operating efficiency and SG&A productivity. In full year fiscal 2024, growth margin expanded 180 basis points to 51.1%. This was driven by operational improvements related to the Ascent transformation, as well as other actions, including the impact of pricing and the disposition of Courtland industrial. Similarly, we continue to benefit from initiatives that improve desk DNA efficiency. Adjusted desk DNA expense, which exclude the send and other one-time charges from both periods, decline 4% year over year. As a percent of sales, it improves 60 basis points to 27.6%.

Shannon Burns: Slide five reflects the continued progress we've made in improving operating efficiency in SG&A productivity.

Shannon Burns: And full year fiscal 2024 gross margin expanded 180 basis points to 51, 1%.

This was driven by operational improvements related to the Suntrust formation as well as other actions, including the impact of pricing and the disposition of Cortland industrial.

Shannon Burns: Similarly, we continue to benefit from initiatives that improved SG&A efficiency, adjusted SG&A expense, which excludes a sand and other one time charges from both periods declined 4% year over year.

Shannon Burns: As a percentage of sales improved 60 basis points to 27, 6%.

Shannon Burns: Turning to slide 6, with both top-line growth and continued gains in operating efficiency and SGA productivity, full year adjusted EBITDA increased 8% year over year. Adjusted EBITDA margins improve 220 basis points from 22.8% in fiscal 2023 to 25.0% in fiscal 2024. On a gap basis, diluted earnings per share from continued operations total $1.50 for fiscal 2024, while adjusted EPS increased 19% from $1.45 to $1.72, which benefit from a lower tax rate and a 4% lower share count. Effective tax rate for our adjusted EPS was 21.6% in fiscal 2024, as compared to 23.2% in fiscal 2023.

Shannon Burns: Turning to slide six with both topline growth and continued gains in operating efficiency in SG&A productivity full year, adjusted EBITDA increased 8% year over year.

Adjusted EBITDA margins improved 220 basis points from 22, 8% in fiscal 2023 to 25 zero percent in fiscal 2024.

Shannon Burns: On a GAAP basis diluted earnings per share from continued operations totaled $1 50 for fiscal 2024, while adjusted EPS increased 19% from $1 45 to $1 72.

Shannon Burns: Which benefited from a lower tax rate and a 4% lower share count.

Shannon Burns: The effective tax rate for adjusted EPS was 21, 6% in fiscal 2024 as compared to 23, 2% in fiscal 2023.

Shannon Burns: On a cash flow basis, we hit the high end of our guidance with free cash flow of $70 million in fiscal 2024. That represents a conversion rate of 82% of net earnings, in line with our expectations as we continue to invest in the send during the year. Of note, as we've laid out in the past, we expected free cash flow conversion to be lower in the first few years of the planning period due to investments made as part of the Ascend Program and Strategic Growth Initiatives. We have targeted at least a 100% conversion by fiscal 2026.

On a cash flow basis, we hit the high end of our guidance with free cash flow of $70 million in fiscal 2024 that represents a conversion rate of 82% of net earnings in line with our expectations as we continued to invest in our son during the year.

Shannon Burns: Of note as we've laid out in the past, we expected free cash flow conversion to be lower in the first few years of the planning period due to investments made as part of the <unk> program and strategic growth initiatives, we have targeted at least a 100% conversion by fiscal 2026.

Shannon Burns: As you can see on slide 7, we have captured significant gains since we launched our Ascend Transformation Program in fiscal 2022. As a fiscal year on 2024, we reached the official conclusion of the program with a total investment of $75 million. Since fiscal 2021, adjusted EBIT a roughly doubled from $75 million to $147 million in fiscal 2024, with margin expansion of approximately 1,100 basis points. That represents benefits well above our initial target of $40 to $50 million and an excess of our revised targets of $50 to $60 million. And with the full year adjusted, even a margin of 25% in fiscal 2024, we achieved that objective a year ahead of the plan.

As you can see on slide seven we have captured significant gains since we launched our central inspiration program in fiscal 2022.

Shannon Burns: As of fiscal yearend 2024, we reached the official conclusion of the program with total investment of $75 million.

Shannon Burns: Since fiscal 2021, adjusted EBITDA, roughly doubled from $75 million to $147 million in fiscal 2024 with margin expansion of approximately 1100 basis points.

Shannon Burns: That represents benefits well above our initial target of $40 million to $50 million and in excess of our revised targets of $50 million to $60 million.

Shannon Burns: And with the full year adjusted EBITDA margin of 25% in fiscal 'twenty four we achieved that objective a year ahead of plan.

Shannon Burns: Okay.

Shannon Burns: Starting to fourth quarter results highlighted on slide number 8, we delivered year-over-year organic growth of 0.9% in the quarter. ITS growth of 0.8% was comprised of service revenue growth from 9.7% offset by a 1% decline in products revenue. In the fourth quarter, we continued to manage SG&A expenses through efficiency and productivity initiatives. At the same time, growth margins were negatively impacted by project mix and a higher percent service revenue is compared to our standard products.

Shannon Burns: Turning to fourth quarter results highlighted on slide number eight we delivered year over year organic growth of <unk>, 9% in the quarter.

Shannon Burns: <unk> growth of 8% was comprised of service revenue growth of nine 7% offset by a 1% decline in products revenue.

Shannon Burns: In the fourth quarter, we continued to manage SG&A expenses through efficiency and productivity initiatives.

At the same time gross margins were negatively impacted by project mix and a higher percentage of service revenue as compared to our standard products.

Shannon Burns: Turning to the balance sheet, our PACS position remains strong. As shown on slide number nine, net debt was $27 million, resulting in a net debt leverage ratio of 0.2 times adjusted EBITDA at year-end fiscal 2024. Total liquidity was $565 million. Subsequent to the end of the fiscal year, we completed the acquisition of DTA on a capacity to deploy capital for our disciplined M&H strategy, as well as our internal investments and opportunistic share repurchase.

Shannon Burns: Turning to the balance sheet <unk> position remains strong.

Shannon Burns: As shown on slide number nine net debt was $27 million, resulting in a net debt leverage ratio of two times adjusted EBITDA at year end fiscal 2024.

Total liquidity was $565 million.

Shannon Burns: Subsequent to the end of the fiscal year, we completed the acquisition of DTA on a pro forma basis, including the financing of DTA. The net debt leverage ratio was five times. This leaves ample capacity to deploy capital for our disciplined M&A strategy as well as our internal investments and opportunistic share.

Shannon Burns: Repurchase.

Shannon Burns: As outlined in our earnings release and on slide 10, we have presented our initial guidance for fiscal 2025. While we believe the general industrial market will continue to show a decline in the low single-digit range for the year, we anticipate organic revenue growth of 0 to 2% at Enerpac. Net sales, including the full-year contribution from DTA, is forecast at $610 to $625 million. That represents total revenue growth of 5% at the midpoint. Our forecast for adjusted EBITDA is $150 to $160 million, representing a margin of 25.1% at the midpoint in fiscal 2025. As I mentioned, we achieved our target of a 25% adjusted EBITDA margin ahead of schedule in fiscal 2024.

Shannon Burns: As outlined in our earnings release and on Slide 10, we have presented our initial guidance for fiscal 2025, while we believe the general industrial market will continue to show a decline in the low single digit range for the year, we anticipate organic revenue growth of zero to 2% at <unk>.

Shannon Burns: Net sales, including the full year contribution from DTA is forecast at $610 million to $625 million.

Shannon Burns: That represents total revenue growth of 5% at the midpoint.

Shannon Burns: Our forecast for adjusted EBITDA is $150 million to $160 million, representing a margin of 25, 1% at the midpoint in fiscal 2025.

Shannon Burns: As I mentioned, we achieved our target of a 25% adjusted EBITDA margin ahead of schedule in fiscal 2024.

Shannon Burns: Based on our financial framework, our objective has been to achieve a further 50 basis point improvement in subsequent years. Inline with that framework, excluding the acquisition of DTA, our adjusted EBITDA margin guidance would have increased approximately 50 basis points to 25.5% in fiscal 2025. While DTA is nicely profitable and additive to EBITDA, it is diluted on a margin basis in its first year.

Shannon Burns: Based on our financial framework, our objective has been to achieve a further 50 basis point improvements in subsequent years.

In line with that framework, excluding the acquisition of DTA, our adjusted EBIT margin guidance would have increased approximately 50 basis points 25, 5% in fiscal 2025, while DTA is nicely profitable additive to EBITDA. It is dilutive on a margin basis in its first year.

Shannon Burns: We've reached free cash flow of $85 to $95 million with CAPACs of $19 to $24 million. Note that CAPACs is expected to be higher than prior years in fiscal 2025, primarily due to one-time investments for the buildouts of our new headquarters, which we've discussed previously. As you can see from this slide, we have included our modeling assumptions, including interest expense, depreciation, and amortization, along with our adjusted tax rate.

Shannon Burns: We project free cash flow of $85 million to $95 million with capex of 19% to $24 million.

Shannon Burns: Note that capex is expected to be higher than prior years in fiscal 2025, primarily due to onetime investments for the Buildout of our new headquarters, which we have discussed previously.

Shannon Burns: As you can see from this slide we have included our modeling assumptions, including interest expense depreciation and amortization along with our adjusted tax rate.

Paul Sternlieb: With that, let me turn the call back to Paul.

Speaker Change: With that let me turn the call back to Paul.

Paul Sternlieb: Thanks, Shannon. As you just heard, we are committed to capturing further growth and margin improvement going forward. That effort outlined on slide 11 will be enabled by what we call powering InterPAC performance for CAPAC, which is our continuous improvement program and a natural extension of Ascend. With CAPAC, we are focused on standardization and simplification of all processes for manufacturing, discouragement, to finance, and marketing, eliminating unnecessary steps, reducing complexity, and ensuring best practices are consistently applied across the organization. CAPAC also means challenging ourselves to be better as we drive innovation, improve customer satisfaction, and unlock additional opportunities for growth.

Paul Stanley: Thanks Shannon.

Paul Stanley: As you just heard we are committed to capturing further growth and margin improvement going forward.

That effort outline on slide 11, we will be enabled by what we call powering <unk> performance or pet, which is our continuous improvement program and a natural extension of ascend.

Paul Stanley: With tab, we are focused on standardization and simplification of all processes for manufacturing to procurement to finance and marketing eliminating unnecessary steps, reducing complexity and sharing best practices are consistently applied across the organization.

Paul Stanley: That also means challenging ourselves to be better as we drive innovation improve customer satisfaction and unlock additional opportunities for growth.

Paul Sternlieb: Pepple utilized the same framework, tools, and methodology that we established first, then with the same level of rigor. I'm excited about this journey of continuous improvement and the benefits that will accrue to Enerpac as we move forward.

Paul Stanley: Capital utilized the same framework tools and methodologies that we established firsthand with the same level of rigor I'm excited about this journey of continuous improvement and the benefits that will accrue to enter back as we move forward.

Paul Sternlieb: Switching to our geographic performance, as shown on slide 12, revenue growth across our three regions was mixed. Fiscal 2024 revenue in the Americas was up in the low single digits. While demand has been flat to declining for ITS standard products and services, having listing technology or HLT remains strong with an expanding funnel. Distributors' sentiment remains cautious, and they are tightly managing inventory accordingly.

Paul Stanley: Switching to our geographic performance as shown on slide 12 revenue growth across our three regions was mixed.

Paul Stanley: Fiscal 2020 for revenue in the Americas was up in the low single digits.

Paul Stanley: Demand has been flat to declining for Ics standard products and services, having lifting technology or HRT remains strong with an expanding funnel distributor sentiment remains cautious and they are tightly managing inventories accordingly.

Paul Sternlieb: In Asia Pacific, our smallest region, full year revenue declined in the mid single digits. Performance in the region continues to be impacted by softness in the mining sector. However, as discussed last quarter, we continue to add distributors and expand to commercial support. With that and the recently launched e-commerce in Australia, we expect the APAC region to return to growth in fiscal 2025.

Paul Stanley: In Asia Pacific our smallest region full year revenue declined in the mid single digits performance in the region continues to be impacted by softness in the mining sector. However.

Paul Stanley: However, as discussed last quarter, we continued to add distributors and expanded commercial support.

With that and the recently launched E Commerce in Australia, we expect the APAC region to return to growth in fiscal 2025.

Paul Sternlieb: In the Amir region, we continue to enjoy strong performance with high single-digit revenue expansion for the year. The gains were broad-based across end markets. And with the recent introduction of e-commerce in Europe and the rollout of Enerpac's Commercial Excellence or ECX, which establishes a more disciplined sales process, we expect to capture further market share gains. In the fourth quarter of fiscal 2024, consistent with overall market trends, revenue growth had to be slowed from prior quarters to the low single digits in the fourth quarter. Fourth quarter sales in the Americas region were flat year of year, and the APAC region was down mid single digits.

Paul Stanley: In the EMEA region, we continue to enjoy strong performance with high single digit revenue expansion for the year the gains were broad based across end markets.

Paul Stanley: And with the recent introduction of E Commerce in Europe, and the rollout of <unk> commercial excellence or <unk>, which establishes a more disciplined sales process, we expect to capture further market share gains.

Paul Stanley: In the fourth quarter of fiscal 'twenty, four consistent with overall market trends revenue growth in EMEA slowed from prior quarters. So the low single digits in the fourth quarter.

Paul Stanley: Fourth quarter sales in the Americas region were flat year over year in the APAC region was down mid single digits.

Paul Sternlieb: As Shannon mentioned, Cortland posted his first year of year revenue growth of fiscal 24 in the fourth quarter. With the resolution of commercial negotiations earlier in the year, we expect Cortland to resume organic growth in fiscal 2025. Several new products recently began commercial launch or are on the path, having completed regulatory approval or customer qualification. That should help as we move through the year.

Speaker Change: As Shannon mentioned Cortland posted its first year over year revenue growth in fiscal 'twenty four in the fourth quarter.

Speaker Change: With the resolution of commercial negotiations earlier in the year, we expect cortland to resume organic growth in fiscal 2025.

Speaker Change: Several new products recently began commercial launch or are on the path, having completed regulatory approval where customer qualification.

Speaker Change: That should help as we move through the year.

Paul Sternlieb: Turning to product innovation and slide 13. Over the past year, we've introduced several new products, including our first battery-operated handheld torque wrench lineup, the 100-ton hydraulic lockrack pooler, the 40-ton hydraulic pin puller kits, and our two new battery-powered portable pumps. These have been the result of a refocused product innovation program aligned with customer needs in our key vertical markets. I'm pleased with the progress we're making on innovation and excited about our roadmap moving forward.

Speaker Change: Turning to product innovation and slide 13.

Speaker Change: Over the past year, we've introduced several new products, including our first battery operated handheld torque wrench lineup, the 100 ton hydraulic Lockhart pooler the.

Speaker Change: The 40 ton hydraulic pinpoint kit.

And our two new battery powered portable pumps.

Speaker Change: These have been the result of a refocused product innovation program aligned with customer needs in our key vertical markets I am pleased with the progress, we're making on innovation and excited about our roadmap moving forward.

Paul Sternlieb: An important part of gaining traction in the marketplace is our participation at key trade shows, including three we attended in late September. For the first time, we exhibited at the Indian Trans International Trade Fair in Berlin, Germany, the leading fair globally for rail transport technology. At the show, we focused on introducing our brand and launching our RP-70A rail stressing kit in our TL-248 track list system. Aided by a mock-up of a live piece of track, as shown on slide 12, both products were highly popular with a large cross-section of attendees. The show exceeded our expectations, generating a large number of new leads and many requests for live demonstrations that customers like.

Speaker Change: An important part of gaining traction in the marketplace is our participation at key trade shows including three we attended in late September.

Speaker Change: For the first time, we exhibited at the inner trends International trade Fair in Berlin, Germany, a leading fair globally for rail transport technology <unk>.

Speaker Change: At the show, we focused on introducing our brand and launching our RP 70, a rail stressing kit and <unk> hundred 48 tracklist system.

Aided by a mockup of alive subtract as shown on slide 12, both products were highly popular with a large cross section of attendees.

Speaker Change: The show exceeded our expectations generating a large number of new leads and many requests for live demonstrations at customer site.

Paul Sternlieb: About the same time, we also exhibited at the Mind Expo Show in Las Vegas. At that show, Enerpac featured a range of heavy lifting technology, as well as new standard products. And with a new approach to marketing, which included extensive pre- and post-show activity, we've rigorously tracked and advanced the significant number of opportunities.

Speaker Change: About the same time, we also exhibited at the mine Expo show in Las Vegas at that show <unk> featured a range of heavy lifting technology as well as new standard products.

And with a new approach to marketing, which included extensive pre and post show activity, we've rigorously track and advanced a significant number of opportunities.

Paul Sternlieb: Additionally, as shown on slide 14, we exhibited at Wind Energy in Hamburg, Germany, which tracked industry professionals from across the globe. Enerpac's presence at this event focused on networking with key industry decision makers, as well as showcasing our latest solutions, including high performance battery tools, such as our SC and XC2 cordless battery pumps, and the BTW battery torque wrench product line. Attendees were particularly interested in how Enerpac's tools can enhance the efficiency of wind farm maintenance and operations. And speaking of the wind market, trends in this target vertical continue to provide a positive environment for Enerpac.

Speaker Change: Additionally, as shown on slide 14, we exhibited at wind energy in Hamburg, Germany, which attract industry professionals from across the globe.

Speaker Change: <unk> presence at this event focused on networking with key industry decision makers as well as showcasing our latest solutions, including high performance battery tools, such as our SC and ex situ cordless battery pumps and the Btw battery torque wrench product line.

Speaker Change: Attendees were particularly interested in how <unk> tools can enhance the efficiency of wind farm maintenance and operations and.

Speaker Change: And speaking of the wind market trends in this target vertical continued to provide a positive environment for intertek.

Paul Sternlieb: In fact, according to the Energy Information Administration, wind turbines generated more electricity than coal-burning power plants in the US in March and April of this year. That crossover is occurring as breakthroughs in technology have lowered the cost of building wind turbines and battery storage. Analysts estimate that the percentage of electricity from wind will more than double to around 35% by 2050. We believe these favorable dynamics in the wind market provide a very positive environment for Enerpac's highly competitive product lines that serve the full life cycle of wind turbines, from manufacturing and installation to operations and maintenance, and eventual decommissioning.

Speaker Change: In fact, according to the energy information administration wind turbines generated more electricity than coal burning power plants in the U S. In March and April of this year.

That crossover is occurring as breakthroughs in technology have lowered the cost of building wind turbines and battery storage.

Analysts estimate that the percentage of electricity from wind will more than double to around 35% by 2050.

Speaker Change: We believe these favorable dynamics in the wind market provide a very positive environment for <unk> highly competitive product lines that serve the full lifecycle of wind turbines for manufacturing and installation to operations and maintenance and eventual decommissioning.

Paul Sternlieb: Moving to slide 15. In July, we announced the appointment of Eric Chak as Executive Vice President of Operations. Eric brings a record of operations leadership and deep industrial manufacturing experience. In only a short time, he's established a clear operation strategy and detailed playbook to create value through functional excellence, manufacture, effectiveness, and supply chain efficiency.

Speaker Change: Moving to slide 15 in July we announced the appointment of Eric <unk> as executive Vice President of operations Eric.

Speaker Change: Eric brings a record operations leadership and deep industrial manufacturing experience.

Speaker Change: It only a short time he has established a clear operation strategy and detailed playbook.

Speaker Change: <unk> value through functional excellence manufacturer effectiveness and supply chain efficiency.

Paul Sternlieb: And, as announced in the separate release yesterday, Garin Kozik will be joining Enerpac as executive vice president and chief financial officer on October 28th. Garin joins us from Manpower Group, where he led their global business financial planning and analysis, mergers and acquisitions, treasury procurement, and investor relations functions. He also had a 17-year career at General Electric in roles of increasing scope and global response. We are very much looking forward to having him as part of the team. Finally, turning to slide 16, we are excited about the acquisition of DTA, which we announced on September 5th. DTA's product line provides an excellent complement to Enerpac's heavy lifting technology. Combining our focus on vertical lift with DTA specialization in horizontal movement enables us to provide more comprehensive solutions for our customers. We anticipate meaningful revenue synergies as we seek to greatly expand DTA sales and distribution capabilities and reach beyond Europe, which currently counts for approximately 90% of its sales. On the cost side, we believe DTA will benefit from Enerpac's disciplined operating processes while leveraging shared procurement and back office expenses. We are already well along in the integration of DTA and have established a lead generation process for cross-selling our equipment. More broadly, DTA is a good example of our M&A strategy. Like DTA, the vast majority of our funnel is based on proprietary targets. While those deals can take longer to develop, like DTA, which took about a year, they are based on building a deep relationship and understanding of the strategic fit and value-creating opportunity. Before we open the floor to questions, I'd like to thank our employees across the globe, including our newest team members from DTA, for their excellent work in fiscal 2024. I'd also like to take this opportunity to thank Shannon for his interim leadership of the finance function over the past couple of quarters as we conducted the CFO search. Our finance organization continued to operate extremely effectively and efficiently under Shannon's strong and capable leadership, and I'm extremely grateful for all the support he provided. Going forward, Shannon will continue to lead our business decision support office and play a key role in helping drive further growth and productivity enhancements across Enerpac. With that, we'd be happy to take questions. Thank you.

Speaker Change: And as announced in a separate release yesterday, Darren Kozak will be joining <unk> as executive Vice President and Chief Financial Officer on October 28.

Speaker Change: <unk> joins us from manpower group, where he led their global business financial planning and analysis mergers and acquisitions Treasury procurement and Investor relations functions.

Speaker Change: You also had a 17 year career at general electric in roles of increasing scope and global responsibility. We are very much looking forward to having them as part of the team.

Speaker Change: Finally, turning to slide 16, we are excited about the acquisition of DTA, which we announced on September five <unk>.

Speaker Change: Ta product line provides an excellent complement to enter tax heavy lifting technology.

Speaker Change: Combining our focus on vertical lift with DTA specialization in horizontal movement enables us to provide more comprehensive solutions for our customers.

We anticipate meaningful revenue synergies as we seek to greatly expand DTA sales and distribution capabilities and reach beyond Europe, which currently accounts for approximately 90% of its sales.

Speaker Change: On the cost side, we believe DTA will benefit from <unk> disciplined operating processes.

Speaker Change: Leveraging share procurement and back office expenses.

Speaker Change: We're already well along in the integration of DTA and have established a lead generation process for cross selling our equipment.

Speaker Change: More broadly DTA is a good example of our M&A strategy.

Speaker Change: Like DTA the vast majority of our funnel is based on our proprietary targets.

Speaker Change: While those deals can take longer to develop like DTA, which took about a year. They are based on building a deep relationship and understanding of the strategic fit and value creating opportunity.

Speaker Change: Before we open the call to questions I would like to thank our employees across the globe, including our newest team members from DTA for their excellent work in fiscal 2024.

Speaker Change: I'd also like to take this opportunity to thank Shannon or as interim leadership of the finance function over the past couple of quarters as we conducted the CFO search.

Speaker Change: Our finance organization continued to operate extremely effectively and efficiently understand and strong and capable leadership.

Speaker Change: Extremely grateful for all the support he provided.

Speaker Change: Going forward Shannon will continue to lead our business decision support office and play a key role in helping drive further growth and productivity enhancements across <unk>.

Speaker Change: With that we'd be happy to take questions.

Speaker Change: Thank you we will now begin the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue.

Tom Hayes: We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. Your first question comes from a line of Tom Hayes from CLK.

Speaker Change: I would like to withdraw your question simply press Star one again.

Speaker Change: Our first question comes from the line of Tom Hayes from C. L. King Your line is open.

Paul Sternlieb: Your line is open. Hey, good morning, Paul. Good morning, Tom. Is there any common opportunities for you in DTA in the subsequent fiscal year? Yes, sure, thanks, Tom. We are super excited about DTA. We were happy to get that deal done right here at the beginning of the fiscal year. It's a great business that has an excellent track record of really solid, strong, organic growth led by the previous owners who are still continuing to run the business going forward as part of the Enerpac team.

Hey, good morning, Paul Good morning, Tom.

Tom Hayes: I appreciate the time. This morning, just a couple of questions first on DTA.

Tom Hayes: Nice acquisition I was just maybe if you could maybe call out we used to just maybe some of the most prominent opportunities for you in detail this upcoming fiscal year.

Paul Stanley: Yes sure. Thanks, Tom.

Paul Stanley: Super excited about DTA, we were happy to get that deal done right here at the beginning of the fiscal year. It's a great business. It has an excellent track record of really solid strong organic growth.

Paul Stanley: Led by.

Paul Stanley: The previous owners, who are still continuing to run the business going forward as part of the <unk> team.

Paul Sternlieb: I think what we like, probably particularly and most about DTA, there's probably, I guess, three things I'd highlight. First and foremost, it's extremely complimentary, particularly to our existing HLT businesses. I referenced in my remarks earlier, you know, really their specialty is horizontal movement of very, very heavy industrial loads. As you know, our HLT business is really all about vertical lifting. There are many applications where customers need both of those. Previously, we didn't really offer horizontal movement. And so we have existing customer relationships, both at the Enerpac side and the DTA side, where we can leverage that kind of combined synergy from a commercial perspective.

Paul Stanley: What we like.

Paul Stanley: Probably particularly in most about DTA.

Paul Stanley: There is probably I guess three things I'd highlight first and foremost it's extremely complementary, particularly to our existing <unk> business as I referenced in my remarks earlier.

Really there are specialty is horizontal movement of very very heavy industrial loads as you know our <unk> business is really all about vertical lifting there are many applications, where our customers need both of those previously we didn't really offer horizontal movement.

Paul Stanley: So we have existing customer relationships, both at the <unk> side, and the DTA side, where we can leverage that kind of combined synergy from a commercial perspective, I think the second as I referenced as we see lots of opportunity for geographic expansion. The vast majority of DTA sales really are and have been in the European.

Paul Sternlieb: I think the second, as I referenced, is we see lots of opportunity for geographic expansion. The vast majority of DTA sales really are and have been in the European region, given their location there in Spain. They've actually never had dedicated sales resources outside of Europe. And so we can leverage the existing sales channel and network that we have in many parts of the world, including here in the Americas, to really help expand. And that process is now actually well underway; super excited about the funnel of opportunities we're building there. And I think thirdly, there's a lot of complementarity, particularly in the end markets that we serve, including things like wind and rail that are obviously key verticals for us, where they are strong and where we continue to drive growth and gain share.

Paul Stanley: Region, given their location there in Spain.

Paul Stanley: I've actually never had a dedicated sales resources outside of Europe and so.

Paul Stanley: We can leverage the existing sales channel and network that we have in many parts of our including here in the Americas to really help expand and that that process is now actually well underway Super excited about the funnel of opportunities. We are building there and then I think thirdly, there is a lot of complementarity, particularly in the end markets that we serve.

Paul Stanley: <unk>.

Paul Stanley: Including things like wind and rail that are obviously key verticals for us where there are strong and where we continue to drive growth and gain share. So I think in all of those we see really interesting opportunities to continue to drive growth in the DTA business.

Tom Hayes: So I think in all those we see really interesting opportunities to continue to drive growth in the DTA business. This. No, that was great.

Speaker Change: No that was great would you would you say that.

Paul Sternlieb: Would you say that if you look at, you know, your customers are using your HLT technology, they have the need for the more side to side moving solutions that DTA brings, are they going elsewhere for those solutions now and just kind of how does that fit into the competitive picture? Right. Yeah, it depends on the customer, and all them do, but in some cases, yes, they absolutely need that.

Speaker Change: If you look at your customers or you are using your H L T technology.

The need for the more sie decided moving solutions that DTA brings her.

Speaker Change: Are they going elsewhere for those switches now and.

Speaker Change: Just kind of how does that fit into the competitive picture.

Speaker Change: Right, yes, it depends on the customer not all of them do but in some cases, yes, they absolutely need that in fact, it's a bit.

Paul Sternlieb: In fact, it's a bit, I guess, funny because we actually discovered post-the acquisition that DTA was bidding on some projects where we just didn't literally offer the side-to-side solution with our existing customers. So, I mean, it definitely points to there's a very specific need and opportunity out there. You know, those are a handful of cases where we're obviously, we're now joined up in doing that, but it clearly highlights that there is that shared application and opportunity in many of our customers.

Speaker Change: I guess funny, because we actually discovered post the acquisition.

Speaker Change: The DTA was bidding on some.

Speaker Change: Projects, where we just didnt literally offer the side to side solution with our existing customers. So I mean, it definitely points to there is a very specific need and opportunity out there.

Speaker Change: Those are a handful of cases, where we're obviously, we're now joined up and doing that but it clearly highlights that there is that shared application opportunity in many of our customers.

Tom Hayes: Okay, maybe just one last one on DTA.

Speaker Change: Okay, maybe just one last one on DTA do they have a service or reoccurring revenue component.

Paul Sternlieb: Do they have a service or reoccurring revenue component that would be complementary to your service business? Yes, they do actually. So, because it's capital equipment, it obviously requires regular maintenance and parts and the like. That is a nice and growing business for them. We do think, like many businesses in this space, certainly smaller businesses, historically, the focus has been on the sale of new equipment. And I wouldn't say aftermarket has been an afterthought.

Speaker Change: <unk> entered service business, yes, they do actually so because it's capital equipment and it obviously requires.

Speaker Change: Regular maintenance.

Speaker Change: Parts and the like.

Speaker Change: That is a nice and growing business for them.

Speaker Change: We do think like many businesses in this in this space certainly smaller businesses historically the focus has been on the sale of new equipment.

Speaker Change: And I wouldn't say aftermarket that's been an after thought they serve their customers well, but we believe there is certainly an opportunity for us to drive more focused growth on the aftermarket side of the business and Thats one of our key growth initiatives for DTA and that also tends to be margin accretive within the business.

Paul Sternlieb: They serve their customers well, but we believe there's certainly an opportunity for us to drive more focused growth on the aftermarket side of the business. And that's one of our key growth initiatives for DTA. And that also tends to be margin accrued within the business.

Tom Hayes: Okay, just maybe shifting gears a little bit to your 25 outlook. I was just wondering if you could provide a little bit more color as to how you see, you know, your key target verticals performing in 25 vis-a-vis your guidance. I mean, you mentioned to win a little bit, but maybe some commentary on the rail, the MRO, and infrastructure markets. More specifically, on the infrastructure market, as we've seen to be getting some market signals that maybe projects aren't moving as fast as people are originally anticipated, but maybe that'll pick up in the back after the year.

Speaker Change: Okay, and just maybe shifting gears a little bit to your 25 outlook I was just wondering if you could provide a little bit more color.

Speaker Change: How you see your key target verticals performing in 'twenty vis vis your guidance I mean, you mentioned the wind a little bit but.

Speaker Change: Maybe some commentary on the rail the MRO and infrastructure market more specifically on the infrastructure market as we seem to be.

Speaker Change: Getting some market signals that maybe projects are moving as fast as people had originally anticipated, but maybe that will pick up in the back half of the year. So any color you can provide on that would be great.

Paul Sternlieb: So any color you can provide on that would be great. Yeah, sure. I think on our key verticals, if I take them in turn, obviously reference we were recently exhibiting on a number of key shows. In fact, I was at the two shows in Germany for wind and rail. And I think at both of those end markets, we continue to see, you know, reasonably positive signs in terms of demand profile and investment activity happening there. So I think we feel good going into FY25 here around what that could look like in support of overall organic growth.

Speaker Change: Yes, sure I think our R&D versus if I take them in turn we're obviously referenced we were recently exhibiting at a number of key shows in fact I was at the two shows in Germany for wind and rail and I think in both of those end markets. We continue to see.

Speaker Change: Reasonably positive signs in terms of the demand profile in investment activity happening. There. So I think we feel good going into FY 'twenty five here around what that could look like and support our overall organic growth and we continue to drive additional or disproportionate resources and investment against.

Paul Sternlieb: And we continue to drive, you know, additional or disproportionate resources and investment against wind and rail and markets, including innovation that I talked about in my remarks earlier. I think in the infrastructure space, we still, you know, certainly see the opportunity set, particularly given obviously all the funding activity. And that's probably most, you know, robust here in the US, but I'd remind folks that, you know, that level of infrastructure investment in many cases is happening around the world. We see that in Japan. We see that in other parts of Asia. We see that in many parts of Europe with aging infrastructure.

Speaker Change: Wind and rail end markets, including innovation that I talked about in my remarks earlier I think in the infrastructure space, we still certainly see.

Speaker Change: The opportunity set, particularly given obviously all the funding activity and that's probably most.

Our robust here in the U S, but I would remind folks that that level of infrastructure investment in many cases is happening around the world, we see that in Japan.

Speaker Change: We see that in other parts of Asia, we see that in many parts of Europe with aging infrastructure. So the need is there.

Paul Sternlieb: So the need is there. You know, funds are being made available. I think it's slower than most of us would like to see in terms of the rollout, particularly here in the US. But what does give me a little bit more comfort is, you know, we've got access to some more proprietary data sets that give us insight into some of the more leading indicators around where these projects are in their life cycle. And we do see them progressing. And that gives us access to kind of early stage in the bidding process to be able to, you know, drive kind of brand specification and preference for enterprise.

Speaker Change: Funds are being made available I think it is slower than most of us would like to see in terms of the rollout, particularly here in the U S.

Speaker Change: What does give me a little bit more comfort as we we've got access to some more proprietary datasets that give us insight into some of the more leading indicators around where these projects are in their lifecycle and we do see them progressing and that gives us access to kind of early stage in the bidding process to be able to.

Speaker Change: To drive kind of brand specification and preference for interfax. So.

Tom Hayes: So we are hopeful we'll see more of that infrastructure activity play out, you know, into actual, you know, revenue here in fiscal 25. We wouldn't really describe much. I would say in Fiscal 20. for.

Speaker Change: We're hopeful we'll see more of that infrastructure activity play out into actual.

Speaker Change: Revenue here in fiscal 'twenty five.

Speaker Change: Wouldn't really ascribe much I would say in fiscal 'twenty four.

Paul Sternlieb: Maybe it's one follow-up that go back to the queue on the infrastructure. I get I'll call it slowness. I've got some kind of mixed drivers for that. I was just wondering your thoughts on kind of what's maybe slowing down the project flows at regulatory issues. Is it setting? Is that just, I'm assuming it's not financing issue? Your thoughts on that. Yeah, I don't think it's financing per se. I think some of it might be permitting. I think there's also just practical labor availability. Which is still a challenge, you know, just given the tight labor market still here in the US market.

Speaker Change: Maybe just one follow up they'll go back to the queue on the infrastructure I'll call. It slowness.

Speaker Change: I've got some kind of mix drivers for that I was just wondering your thoughts on kind of what's maybe slowing down the project close it regulatory issues is that setting is there just I'm, assuming it's not financing just your thoughts on that.

Speaker Change: Yes, I don't think its financing per se I think some of it might be permitting I think there's also just practical labor availability, which is still a challenge just given the tight labor market is still here in the U S market.

Paul Sternlieb: But those are the things that we hear. But I think, you know, the intent is there. As we said, the funds obviously are being made available. And I think it's just a matter of working through, you know, the typical timelines on process to get these things bid out and get the permitting done. As you know, where Enerpac participates, it tends to be sort of towards the latter stage of the cycle. Right. I mean, you know, it's, you know, projects get bid out and the funds are awarded. And, you know, it's not really until material shows up at site.

Speaker Change: But those are the things that we hear but I think the intent is there as you said the funds obviously are being made available and I think it's just a matter of working through the typical timelines on on process to get these things get out and get the permitting done as you know where <unk> participates it tends to be sort of towards the <unk>.

Speaker Change: Later stage of the cycle right.

Speaker Change: Next get bid out and then the funds are awarded and it's.

Speaker Change: It's not really until material show up at site and they actually need to start truly physically putting things together the intertek tools come into play.

Tom Hayes: They actually need to start truly physically putting things together; that Enerpac tools come into play. Okay, appreciate the color. Thanks, Bob. Okay. Thanks, Tom.

Okay I appreciate the color thanks, Paul.

Paul Stanley: Thanks, Tom.

Ross Sparrow: Your next question comes from a line of Ross Sparrow and Black from William Blair.

Speaker Change: Our next question comes from the line of Ross Sparing Black from William Blair. Your line is open.

Ross Sparrow: Your line is open.

Paul Sternlieb: Hey, good morning, Joe. Morning. Maybe just starting with the 2025 guidance on the organic front, can you maybe help us frame just your assumptions as we think about, you know, market growth across the food geographies. I believe you called out a back as improving, but also, you know, annual price and market share expectations for the new products. I mean, I was going to the sense that the expectation here is that it's going to be more second half loaded on the guidance and the organic front. Yeah, I think, you know, if I start from a market perspective, I mean, you know, Shannon did walk through that, you know, our kind of view around the fiscal 25 guidance at this point.

Speaker Change: Hey, good morning, Jim.

Speaker Change: Morning.

Speaker Change: Maybe just starting with the 2020 guidance on the organic front can you maybe help us frame just your assumptions as we think about margin growth across the three geographies I believe you called out APAC is improving.

Speaker Change: But also your annual price and market share expectations from the new products.

Speaker Change: Get the sense that the expectation here is that it's going to be more second half loaded on the guidance.

Speaker Change: Panic.

Speaker Change: Yes, I think if I start from a market perspective, I mean, Shannon did walk through that our our kind of view around fiscal 'twenty five guidance at this point and as you know, we're not doing or issuing quarterly guidance. So we're really trying to call for the next 12 months, which is not the easiest thing to do sitting where we are.

Paul Sternlieb: And as you know, we're not doing your issue in quarterly guidance, so we're really trying to call for the next 12 months, which is not the easiest thing to do sitting in where we are at this date and time. But I think our view is that the overall market will likely continue to show a decline, probably in the low single-digit range. That's kind of the starting point. You know, obviously, where we're talking about organic growth, we do continue to believe we'll be performing above market, obviously above, you know, a weaker market condition. You know, that's really comprised of a number of things; certainly strong commercial execution.

Speaker Change: At this date and time, but I think our view is that the overall market will likely continue to show a decline probably in the low single digit range. So thats kind of the starting point.

Speaker Change: Obviously, where we're talking about organic growth. We do continue to believe we will be performing above market, obviously above a.

Speaker Change: A weaker market conditions.

Speaker Change: It's really comprised of a number of things certainly strong commercial execution, we continue to drive <unk> commercial excellence, our ECS, we actually will be rolling that out in.

Shannon Burns: We continue to drive, interact, commercial excellence or ECX. We actually will be rolling that out in the mayor region in fiscal 25 after we've completed the role of implementation in America. So we think that will be a nice driver of continued commercial execution for us. There will be some pricing activity. I think it will be more muted than in recent years. Certainly, we'll take pricing actions as needed to continue to cover an offset, if not more than offset, you know, inflationary pressures that we have seen. And I'd remind folks, we do continue to see an inflationary environment.

Speaker Change: In the EMEA region in fiscal 'twenty five after we've completed the rollout and implementation in Americas. So we think that will be a nice driver of continued commercial execution for us there will be some pricing activity I think it will be more muted than in recent years, certainly we will take pricing actions as needed to continue to cover and <unk>.

Speaker Change: Offset if not more than offset inflationary pressures that we've seen and I would remind folks we do continue to see an inflationary environment, that's decelerated, but it's not deflationary right. So we there are pricing actions, we need to take to cover inflationary costs.

Paul Sternlieb: That's decelerated, but it's not deflationary, right? So there are pricing actions we need to take to cover inflationary costs. And then we do have plans not only to drive stronger commercial execution and full rollout. And I say carryover effect of products launched late in fiscal 24, but also new product launches that we're planning. I would say predominantly in the second half of Fiscal 25. So it really is a combination of all of those. And again, I'd remind folks, I mean, generally speaking, we tend to be a little bit second half or back half weighted overall in the interpack revenue.

Speaker Change: And then we do have plans not only to drive stronger commercial execution and full rollout and I say carryover effect.

Speaker Change: <unk> launched late in fiscal 'twenty four.

Speaker Change: But also new product launches that were planning I would say predominantly in the second half of fiscal 2005. So it really is a combination of all of those and again I'd remind folks I mean generally speaking we tend to be a little bit second half or back half weighted overall in the in the <unk> revenue.

Shannon Burns: As you think about, you know, our revenue flows for these. here. Yeah, I just add on is as we think about the 50 basis point improvement that we talked about in the base business, you know pricing, but you know it also is that continuous improvement program, the Paul highlighted happen, you know that's going to drive SGNA productivity and operational efficiency as we continue to move forward and execute very similar projects as we did to us on. Okay, so when we think about kind of the margin guidance in, it's somewhat of a broad range. Maybe flat volume with some productivity initiatives gets you towards the higher end with some price, and then maybe the lower end is just baking in, you know, maybe not as great sharegames offsetting the lowest one is your market decline.

Speaker Change: As you think about our revenue flows for the year.

And I'd just add.

Speaker Change: As we think about the 50 basis point improvement that we talked about in the base business.

Speaker Change: Reising, but it also is that.

Speaker Change: Continuous improvement program that Paul highlighted Pap, and that's going to drive SG&A productivity and operational efficiency as we continue to move forward and execute very similar projects as we did to ascent.

Speaker Change: Okay. So when we think about kind of the margin guidance.

Speaker Change: Somewhat of a broad range.

Speaker Change: Maybe flat volume with some productivity initiatives gets you towards that towards the higher end with some price and then maybe the lower end is just baking in.

Speaker Change: Maybe not as.

Speaker Change: Great share gains offsetting the low single digit market declines.

Shannon Burns: Yeah, maybe you also layer in also what the solution is from the DTA on the margin, so if you can say that already. Yeah, sure, you know, I think you're right on your comments earlier. I mean, obviously we are providing a range, and I think certainly there is a component of volume in there and just getting the overhead benefits from that, the overhead absorption benefits. But, you know, regardless of Shannon reference, I mean, we will continue and we do have a funnel that will continue to execute of continuous improvement issues, just like we're executing in a sense. We're calling that cap powering and impact performance.

Could you also layer and also what the dilution is from the DTA and the margins on.

Speaker Change: If you can say that already.

Speaker Change: Yes, sure I think youre right on your comments earlier I mean, obviously, we are providing a range and I think certainly there is a component of volume and they're just getting the overhead benefits from that and the overhead absorption benefit, but regardless as Shannon referenced I mean, we will continue and we do have a funnel that will continue to execute.

Speaker Change: Continuous improvement initiatives, just like we are executing in a sense, we're calling that Pat powering Intertek performance. We're running that just the same with the same mechanism as we ran a sense. So.

Shannon Burns: We're running that just the same with the same mechanism as we ran a sentence, so from the perspective of anybody here within four walls, matter of fact, it'll feel very much consistent with the way that we executed the send program. We're just not calling out or just, but we still believe it's a great business and we think we have opportunities not just on the growth side, I talked about earlier, but also from a margin improvement perspective. Generally, Shannon referenced, you know, excluding DTA, we would have been targeting about 50 basis points of even done margin expansion for fiscal 25 year or year. With DTA, effectively we're close to flat, so you can kind of do a map behind that.

Speaker Change: From the perspective of anybody here within the four walls a matter of fact, it will feel very much consistent with the way that we execute <unk> program, we're just not calling out or adjusting out externally any onetime charges related to that those will just flow through the P&L.

Speaker Change: I think from the standpoint of DTA.

Speaker Change: What we said is it is margin dilutive at this point in time certainly in year one for <unk>.

Speaker Change: But we still believe it's a great business and we think we have opportunities not just on the gross side I talked about earlier, but also from a margin improvement perspective generally Shannon reference.

Speaker Change: Excluding DTA, we would've been targeting about 50 basis points of EBITDA margin expansion for fiscal 'twenty five year over year with DTA effectively were close to flat. So you can kind of do math behind that.

Paul Sternlieb: Yeah, okay, it's helpful, and then thinking about free cash look conversion targets for 2026 with this and stepping down, I know distributors and ski rationalization is part of the working capital narrative, but can you just maybe remind us of any other letters that are at your disposal to help get that free cash look and version up. Yeah, I can make a few comments. Shannon can add color as well, but I'd say first and foremost, you know, I think the team continues to do a nice job in working capital. We've made multiple improvements this year; we still see runway to drive continued improvements on optimizing working capital. With Eric Jack on board, we see more opportunities on inventory optimization as well.

Speaker Change: Got it Okay. That's helpful and then thinking about free cash flow conversion targets for 2026, with this and stepping down I know distributors and SKU rationalization is in part of the working capital narrative, but.

Speaker Change: Can you just maybe remind us of any other levers that are at your disposal to help get that free cash flow conversion up.

Speaker Change: Yes, I can make a few comments Shannon can add color as well, but I would say first and foremost.

Speaker Change: I think the team continues to do a nice job of working capital. We've made multiple improvements this year, we still see.

Speaker Change: Runway to drive continued improvements on optimizing working capital.

With Eric Jack onboard, we see more opportunities on inventory optimization is while I think the team has done a nice job with regards to our DSO.

Shannon Burns: I think the team's done a nice job with regards to ARD, so, you know, I think I'll say working against us, but one factor that Shannon referenced is in our capex for fiscal 25. You know, we do have a higher amount, which we've talked about previously just because of the HQ or a quarter one-time relocation cost in the build-out of that, which is on plan and on budget. It's just in those costs largely here; the capex largely hits here in fiscal 25. Yeah, and I just add, I mean given, you know, versus the last couple of years, there's just less noise in terms of a lot of sudden charges and cash flows.

Speaker Change: I think.

Speaker Change: I would say working against us, but one factor that Shannon referenced is in our Capex for fiscal 'twenty five we do have a higher amount, which you've talked about previously just because of the HQ where headquarter.

One time relocation costs and the build out of that which is on plan and on budget. It's just hit those those costs largely hit or the capex largely hit here in fiscal 'twenty five.

Speaker Change: Yes, and I'd just add there I mean given.

Speaker Change: Versus the last couple of years, there's just less noise in terms of a lot of a certain charges in cash flow. So we should have a much cleaner year in fiscal year 'twenty five.

Shannon Burns: So, you know, we should have a much cleaner year and fiscal year 25.

Unknown Executive: Perfect.

Speaker Change: Perfect. Thank you guys.

Steve Silver: Thank you, guys. Thank you.

Speaker Change: Thank you.

Paul Sternlieb: Your next question comes from the line of Steve Silver from Argus Research. Your line is open. Thanks, operator, and thanks for taking the questions, and congratulations on a productive year. The first question at the leverage in the company continues to be below the target range with the continued strong free cash flow and the cash position even after the DTA deal. That combined with the robust share repurchase activity.

Speaker Change: Your next question comes from the line of Steve Silver from Argus Research. Your line is open.

Steve Silver: Thanks, operator, and thanks for taking the questions and congratulations on a productive year.

Speaker Change: Thanks Dean.

As the leverage the company continues to be below the target range.

Speaker Change: The continued strong free cash flow and the cash position even after the DTA deal.

Speaker Change: Combined with the robust share repurchase activity I'm, just wondering if there are any updated thoughts or color around the thinking around the capital allocation strategy.

Paul Sternlieb: Just wondering if there are any updated thoughts or color around the thinking around the capital allocation strategy. Yeah, sure. Thanks for the question. You know, our focus remains the same. I would say our target leverage ratio still remains one and a half to two and a half times on a normalized basis. Obviously, we are below that even with the kind of pro forma of DTA here. You know, as we start off fiscal 25. You know, that in mind, you know, I think our priorities are really unchanged. I'd say number one focus continues to be, you know, internal investments, capital investments.

Speaker Change: Yes sure. Thanks for the question.

Speaker Change: Our focus remains the same I would say our target leverage.

Speaker Change: Ratio still remains one five to two five times on a normalized basis. Obviously, we are below that even with the kind of pro forma.

Speaker Change: Of DTA here as we start our fiscal 'twenty five.

Speaker Change: That that in mind I think are our priorities are really unchanged I'd say number one focus continues to be internal investments capital investments and we continue to support any and all of those that have great business case and good returns for our shareholders.

Paul Sternlieb: And we continue to support any and all those that have great business case and good returns for our shareholders. Unfortunately, that's never going to use up all of our available capital resources. So from there, it's really a balanced approach between, you know, maintaining enough capacity or dry powder for intergenic growth and acquisitions like DTA. And then opportunistically returning capital to shareholders predominantly through share repurchase, as we've done right through $38 million of share repurchase in fiscal 24. And we still have roughly, I think, 2.7 million shares remaining under the current authorization. So we'll continue to look at that discussed with our board on an opportunistic basis about share repurchase because certainly we're bullish about the future of Matter Fact and the investments we're making.

Speaker Change: Unfortunately, that's never going to use up all of our available capital resources. So from there, it's really a balanced approach between maintaining enough capacity or dry powder for inorganic growth and acquisitions like GTA and then opportunistically returning.

Speaker Change: Capital to shareholders predominantly through share repurchase as we have done right through <unk>.

$38 million of share repurchase in fiscal 'twenty, four and we still have roughly I think two 7 million shares remaining under the current authorization. So we will continue to look at that discussed with our board on an opportunistic basis about share repurchase.

Speaker Change: Because certainly we're bullish about the future of <unk> and the investments we're making.

Paul Sternlieb: But we do want to maintain sufficient dry powder.

Speaker Change: But we do want to maintain sufficient dry powder, we've been doing a lot of work behind the scenes on continuing to build out our funnel for acquisitions, obviously, those take time and they are episodic.

Paul Sternlieb: We've been doing a lot of work behind the scenes on continuing to build out our funnel for acquisitions. Obviously, those take time, and they are episodic. DTA, an example, took about a year right from start to finish. And so, you know, these are just a long process. But really, I'm pleased with the progress we're making on the funnel build-out, the quality and the quantity. The vast majority of what we've got in that funnel remained proprietary targets with good conversation. So we just want to maintain, you know, a really superior balance sheet to be able to support those decisions when we take them.

Speaker Change: DTA as an example took about a year right from start to finish and so these are just a long process, but really I'm pleased with the progress we're making on the funnel build out the quality and the quantity. The vast majority of what we've got in that funnel remain proprietary targets with good conversations. So we just want to maintain.

<unk>.

Speaker Change: It really superior.

Speaker Change: Balance sheet to be able to support those decisions when we take them.

Steve Silver: That's helpful. Great.

Speaker Change: That's helpful Great and one more if I may.

Paul Sternlieb: And one more if I may. I'm given the fact that the tool industry and the industrial industry at large remains really fragmented. Are you seeing any signs of wider consolidation in the industry given the macroeconomic challenges that you cited earlier and just really the still elevated interest rate environment? Is there any signal of increased consolidation across the industry? Yeah, I wouldn't highlight anything of note, Steve. You know, there are from time to time, you know, acquisitions that get done, but I wouldn't say there's any consistent indication of, you know, significant consolidation by, you know, one or two large acquires. But you're right, it is an opportunity; it is an opportunity for Enerpac.

Speaker Change: Given the fact that the tool industry in the industrial industry at large remains really fragmented.

Speaker Change: Are you seeing any signs of a wider consolidation in the industry.

Speaker Change: Given the macroeconomic challenges that you cited earlier and just really the still elevated interest rate environment is there any signal of increased consolidation across the industry.

Speaker Change: Yes, I wouldn't highlight anything of note Steve.

There are from time to time acquisitions that get done, but I wouldn't say, there's any consistent indication of.

Speaker Change: Significant consolidation by one or two large acquirers, but youre right. It is an opportunity and it's an opportunity for Intertek I mean, the market as I've referenced multiple times remains quite fragmented, especially through the lens that we look at it in the Adjacencies that we're also looking at DTA as a good example.

Paul Sternlieb: I mean, the market, as I've referenced multiple times, remains quite fragmented, especially through the lens that we look at it. And the adjacencies that we're also looking at, DTA is a good example. And so that does present, I think, a very unique opportunity for us on our inorganic growth program. But today, no, I don't think there's anything that I would highlight where we see, you know, particular focus and consistent consolidation efforts by others.

Speaker Change: So that does present I think a very unique opportunity for us on our inorganic growth program, but to date no I don't think theres anything that I would highlight where we see particular.

Speaker Change: Focused and consistent consolidation efforts by others.

Steve Silver: Great, thanks for the color and the best luck in the upcoming year. Okay, thank you, Steve.

Speaker Change: Great. Thanks for the color and best of luck in the upcoming year.

Steve Silver: Okay. Thank you Steve.

Okay.

Unknown Executive: And that concludes our question-and-answer session.

Speaker Change: And that concludes our question and answer session I will now turn the call back over to President and CEO, Paul Sterling for some final closing remarks.

Paul Sternlieb: I will now turn the call back over to President CEO Paul Sternlieb for some final closing remarks. Okay, well, thanks again for joining us this morning. We will be presenting and hosting one-on-one meetings at the upcoming Bayer Global Industrial Conference on November 14 in Chicago. And on December 3 and 4, we will be at the UBS Global Industrial and Transportation Conference in Palm Beach, Florida.

Paul Sterling: Okay, well, thanks again for joining us this morning.

Paul Sterling: We'll be presenting and hosting one on one meetings at the upcoming Baird Global Industrial conference on November 14th in Chicago and on December 3rd and fourth we will be at the UBS Global Industrials and Transportation conference in Palm Beach, Florida in the meantime, Travis will be available to take any follow up.

Travis Williams: In the meantime, Travis will be available to take any follow-up questions.

Paul Sterling: <unk>, Thank you and have a good day.

Operator: Thank you, and have a good day.

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.

Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.

Speaker Change: Okay.

Speaker Change:

Speaker Change: Yeah.