Q2 2025 Enerpac Tool Group Corp Earnings Call
Speaker Change: Ladies and gentlemen, thank you for standing by. Welcome to Enerpac Tool Group's second quarter fiscal 2025 earnings conference call. As a reminder, this conference is being recorded March 25, 2025. It is now my pleasure to turn the conference over to Travis Williams, Senior Director of Investor Relations. Please go ahead, Mr. Williams.
Speaker Change: We believe our performance continues to reflect above market growth and strong execution in what remains a very soft industrial sector.
Speaker Change: EBITDA margins came in at 23, 2% for the quarter down a bit from the prior year due to the impact of mix, but still at top tier levels.
Speaker Change: Moreover, we are maintaining our full year fiscal 2025 guidance and are confident our future will reflect <unk> global brand leadership targeted growth strategy customer driven innovation and continuous improvement through the execution of powering inter Pac performance or Pat.
Speaker Change: Let me turn the call over to Darren to provide more detail on the quarter.
Darren: Thanks, Paul.
Darren: <unk> three <unk> revenue increased five 1% in the second quarter of 2025 on a reported basis.
Darren: Organic basis, adjusting for foreign exchange and our recent <unk> acquisition grew to 5%.
Darren: And our Ics business revenue increased 4% organically year over year old product and services, where I had this quarter was up 4% in product sales and 3% in surfaces. The gain in products was driven by strong performance of our heavy lifting technology businesses. The continued ramp of new products and focused effort by our commercial organization.
Darren: Cortland biomedical reported in our other segment posted growth of 33% as anticipated given comparisons a year ago period that was impacted by temporary shipment delays related to the commercial negotiations.
Darren: Turning to slide four which shows our performance by geography, we delivered high single digit growth in the Americas. This is due to share gains driven by <unk> commercial excellence.
Darren: The program, we undertook a year ago in the region, along with continued execution of our targeted growth strategy and strong growth in our HIV business.
Darren: With ECS, we are improving overall commercial effectiveness by driving stronger growth in our sales funnel and improving the conversion of win rate.
Darren: We've expanded the implementation of <unk> rollout in the EMEA region earlier this year, leveraging the talent and skill set.
Darren: Yes.
Darren: In the APAC region, we continued to generate solid performance does it also has very high single digit growth in the second quarter.
Darren: The highlights were seeing industrial construction growth in several countries, notably India and Singapore.
Darren: While we experienced continued weakness in Australia with cost pressure in the mining sector and the impact of steel and aluminum tariffs on metal producers. We are seeing benefits from continued orders for a second Brian.
Darren: As we onboard new distributors in Australia.
Darren: While we posted a low single digit decline in sales for the EMEA region.
Darren: On a two year pattern of consistent growth, we believe that we continue to outperform in the region.
Darren: A significant macro pressures, especially in our largest markets of France and Germany.
Darren: From a commercial standpoint, the region continues to make progress in the rollout of ECS.
Darren: Turning to slide five gross profit margins up 55% declined 110 basis points year over year on.
Darren: On the product side.
Darren: It can lead to higher growth, our HFC business, which carry slightly lower gross margin than our standard industrial tools.
Darren: Additionally, margins were impacted by the mix of service projects in the quarter.
Darren: As we have previously discussed our service business is complementary to our product.
Darren: As we perform work at customer sites and gained strong insights for new product development.
Darren: Given the recent margin trends in the service business, we have specific initiatives underway to improve the margin profile.
Darren: As we focus on higher quality projects.
Darren: Our differentiated service line offerings and invest in additional field service technicians and equip.
Darren: Portfolio.
Darren: Adjusted SG&A improved slightly as a percent of revenue from 28, 3% versus 28, 4% in the year ago period.
Darren: We continue to carefully manage costs and are considering additional actions as appropriate.
Darren: Our cost structure in 2025 and beyond for long term success.
Darren: All together adjusted EBITDA margins declined 160 basis points in the second quarter due to the aforementioned impact of mix on gross margin and the inclusion of BCS.
Darren: The acquisitions, we completed in early September.
Darren: The effective tax rate returned to a more normalized 24, 3% compared to 27, 3% in the year ago period.
Darren: Adjusted earnings per share was <unk> 39 for the quarter compared with 36 in the year ago period, an 8% increase.
Darren: Turning to the balance sheet shown on slide six <unk> position remains extremely strong.
Darren: Net debt was $73 million at quarter end, resulting in net debt to adjusted EBITDA ratio quite bought totaled.
Darren: Total liquidity, including availability under our revolver was $518 million.
Darren: Through the first half of fiscal 2025 cash flow from operations was $16 million compared with $7 million in the year ago period.
Darren: Free cash flow of $5 million up slightly year over year was impacted by onetime capex associated with the headquarters move.
Darren: For the full year, we are maintaining our cash flow guidance of $85 million to $95 million.
Darren: As cash generation increases higher revenue in the second half of the year.
Darren: In the second quarter, the company repurchased approximately 220000 shares of common stock totaling $10 $2 million.
Darren: As we continue to generate cash coupled with our current leverage ample capacity to deploy our capital our disciplined M&A strategy as well as internal investments and continued opportunistic share repurchases with that let me turn it back to Paul.
Paul: Thanks, Darrin, let me start with some color on key end markets on the power generation front, we've seen a pickup in nuclear business in the U S, including orders related to maintenance as well as decommissioning.
Paul: For the refinery and petrochemical industry, our customers and distributors indicate a positive sentiment.
Paul: Typically some refineries are actually just catching up with the shutdowns that were delayed during COVID-19. We're also seeing a steady level of new investments and assets coming online. Additionally, we see continued oil and gas investments in the middle East.
Paul: In the Americas, we are seeing strong growth in demand from the aerospace industry and we've expanded our focus globally to target opportunities in the EMEA and APAC regions on the defense side, we're optimistic about the outlook as European governments look to increase their defense budgets for.
Paul: So the rail market, we've seen some short term tightening of budgets in the Americas, Although we expect that a couple of upcoming rail focus tradeshows will generate special projects and orders in the EMEA region rail has remained solid mainly due to activity in Italy, and Spain, and we are encouraged by our rail focused new products.
Paul: Some of which have already been approved by network rail in the UK and others in the process of approval.
Paul: General and industrial manufacturing, particularly in the U S remained soft and mining specifically in Australia remains under pressure as we shared in the past few quarters.
Paul: Regarding the wind market, while there has been some negative sentiment towards the sector in recent months <unk> domestic business has been strong a trend we expect to continue as we said our product line serves the full lifecycle of wind turbines for manufacturing and installation to operations and maintenance and eventual decommissioning.
Paul: <unk>, which has proven to be a real asset at.
Paul: At the same time, we continue to pursue growth opportunities outside of the U S and we remain bullish about the wind sector in Europe and parts of Asia.
Paul: Okay.
Paul: For the infrastructure vertical while the benefits of the domestic infrastructure Bill are only just starting to materialize. We are seeing very good signs of project activity, including scoping bidding and permitting we are also experiencing good activity and infrastructure outside of the U S, particularly in Europe and the Middle East.
Paul: Additionally, we are encouraged by the German government recently announced spending package that will include additional infrastructure investments of some $500 billion euros, we expect that will present, a favorable tailwind in the coming years.
Paul: And speaking of infrastructure investments as you can see on slide seven <unk> sync hoist synchronous voice system is being used to position concrete bridge beams for a new railway bridge over the <unk> River in Central Chile.
Paul: <unk> <unk> technology was selected for this delicate job as it enables a bridge contract or do install asymmetric shaped beams over nearby commuter highway and rail track using only a single Craig. This is yet. Another example of how we help our customers make complex off.
Paul: Hazardous jobs possible safely and efficiently.
Let me comment on a couple of other ongoing initiatives last year, we announced a number of new products. The result of our revamped innovation program. We're pleased to see them ramping well with very positive reception from our customers across the globe our.
Paul: Our team is also looking forward to settling into our expanded innovation lab at <unk>, New downtown Milwaukee headquarters and we expect to announce a number of product line extensions and upgrades in 2025 with even more to come in 2026.
Paul: Regarding DTA, which we acquired in September 2024, we're progressing well on its integration into our heavy lifting technology or <unk> business.
Paul: We are actively cross selling dth technology through the <unk> commercial team as evidenced by our recent sizable order from a legacy <unk> customer. We're also leveraging our global sales capabilities to expand Dta's reached beyond its traditional stronghold in Europe. In fact, just last week GTA exhibited at pro Matt.
Paul: One of the leading trade shows for material handling logistics and supply chain solutions held in Chicago at this show DTA showcased an innovative mobile robotics solutions strengthening relationships with industry professionals and generating a high level of potential new business opportunities.
Paul: We believe <unk> is well positioned to help DTA as we implement more efficient manufacturing processes and tools to increase throughput.
Paul: Finally, <unk> will be exhibiting at the <unk> trade show next month <unk>.
Speaker Change: Held in Munich, Germany every three years.
Paul: As the worlds, leading fare for construction machinery and equipment.
Paul: While we will focus on <unk> and feature DTA at our Booth, we will exhibit a range of standard industrial tools and in the past <unk> has benefited from orders placed at the show and the opportunity to build relationships with both distributors and end users.
Speaker Change: As I said, it's the top of the call. We have maintained our guidance for fiscal 2025, but we remain cautious in light of the high level of macro uncertainty and the prospect that tariffs could bring higher inflation and lower growth.
Speaker Change: What we are certain of is that <unk> will be relocating to our new downtown Milwaukee headquarters in our space designed for a specific need and are building proudly featuring the <unk> logo as seen on slide eight.
Speaker Change: So next quarter, we will be speaking to you from our new location at the <unk> Center with.
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'd like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue. If you would like to withdraw your question simply press Star one again.
Will Gilead: First question comes from the line of will Gilead from CJS Securities. Your line is open.
Will Gilead: Hi, can you provide some way well regarding the mix.
Speaker Change: Good morning can you provide some more color regarding the mix shift toward H L T and where you're seeing strength from a geographic and end market perspective, and what are your expectations for the back half of the year from a mix and gross margin perspective. Thank you.
Speaker Change: Yes, sure maybe I'll, just start and Darren can add a few times, especially about the back half, but yes. I mean, we saw good growth as you can see this quarter organically H L. T. In particular had a lot of strength.
Speaker Change: I would say, particularly in the U S. But also we saw some nice activity in <unk> in Europe in the quarter.
Speaker Change: And H L. T is good margin business. Its just not as strong gross margins as our standard products and so with that mix shift along with some of the mix shift in service in the quarter that was really what impacted gross margins.
Speaker Change: Consequently, these are margins in the quarter, but Darren can talk about the second half in particular.
Darren: Yes, typically when you looked at our business in the second half. Thank you north of 50% of our revenue typically 82% range.
Darren: That additional revenue obviously, we get some volume leverage that comes out of that so we expect to see a higher profitability in the back half of the year.
Darren: And it's not only volume we do have our productivity initiatives Pep ongoing. So we will continue to drive that which should improve profitability in the second half of the year by we're confident about our guidance for the year.
Darren: Hello.
Speaker Change: Thank you Super helpful. And then just one more how has the DTA integration going relative to your expectations any surprises so far either positively or anything more challenging than expected. Thank you.
Speaker Change: Sure Yeah, no I'd say, the DTA integration is going well.
Speaker Change: We continue to be very excited about the strategic fit with <unk>, particularly with our <unk> business.
Speaker Change: Pleased with the progress, we're making pleased with.
Speaker Change: The customer response, we've seen in the order activity.
Speaker Change: And we're.
Speaker Change: I would say we remain bullish about the overall fit with the business as well so.
Speaker Change: Everything remains on track from that perspective, and as I mentioned on our prepared remarks, we're extremely excited to have GTA represented at our booth.
At the upcoming bottleneck exhibit.
Speaker Change: Next month in Munich, Germany.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Tom Hayes from C. L. King Your line is open.
Speaker Change: Hi, Thanks, Good morning, guys I appreciate all the color.
Speaker Change: Good morning.
Speaker Change: Maybe just to Paul on the geographic breakdown.
Speaker Change: Q1, the Americas was down mid single digits that was up high single digits in second quarter.
Speaker Change: I think Darren you called out the.
Speaker Change: Commercial Excellence program I was just wondering maybe provide a little bit more.
Speaker Change: Detail on that or in addition to kind of some of your internal initiatives was there any maybe end markets that kind of stood out in the second quarter that kind of helped push the yogurt business forward.
Speaker Change: Right Yeah. Thanks, Tom.
Speaker Change: Yes, I mean, we're certainly are particularly pleased with the growth in the Americas as well as in Asia Pac and even in Europe, I think as Darren remarks, I mean, it's.
Speaker Change: We had really.
Speaker Change: Strong number of quarters of solid growth in Europe. So I mean, despite the fact, we saw a slight decline in the quarter I think we're still pretty confident that we're outperforming the market and some of the challenges they're seeing in Europe, but I think in particularly the strength in Americas. We saw was pretty broad based in terms of end markets and verticals and customers.
Speaker Change: That was good news for Us and then.
Speaker Change: I think as I mentioned earlier <unk> is while was particularly strong for us in Americas in the quarter and finally to the point that Darren referenced earlier, we do see ECS or APAC commercial excellence is really I think starting to take hold and we are seeing benefits of that in ECS for us is really around kind of system at <unk>.
Speaker Change: I think the process for sales and for managing much more actively our sales funnel. So we have much better visibility into leading indicators as opposed to just orders.
Speaker Change: Managing sales People's activity and time and focus on where they are calling on customers.
Speaker Change: Just kind of basic.
Speaker Change: Hygiene, I'll say around pre call plan and post call visit notes and things like this debt.
Speaker Change: Extremely useful tools put in place for rigorously and that's really what we've done is adopted that process and put it in place and really mandated it and I think it's now starting to become the culture of the business and we're rolling that out as we referenced in the prepared remarks.
Speaker Change: The EMEA region as well so pleased with the progress, we're making and I think that's part of why we're seeing the organic growth performance that we saw in the quarter.
Speaker Change: Okay I appreciate it that's great.
Speaker Change: Lastly, you touched on a little bit.
Speaker Change: In your prepared remarks, and I know it tends to change by the hour by the day or the tweets.
I'm just wondering if you could provide any thoughts on that.
Speaker Change: Talk of tariffs, whether they're coming from Mexico, Canada, and then kind of how youre positioned.
Speaker Change: Whether from either selling into those regions or buying products from those regions.
Speaker Change: Yeah, I think as we referenced on last quarter's call. We do think I'd say, we're in a relatively favorable position as it comes to potential impact of new tariffs and obviously as you mentioned I mean, it is a bit of a dynamic environment for sure. So were trying to react and be as responsive as we can.
Speaker Change: <unk>, New news of course, but on a direct basis, we mentioned last quarter, we estimate that both finished products and components imported into the U S from China, specifically is less than $20 million imports into the U S from Canada, and Mexico for Us are basically negligible.
Speaker Change: So the direct impact I think is pretty clear to be able to calculate depending on the changing tariff environment I think what's more important perhaps though is the indirect impact from our suppliers, which is admittedly a bit harder to measure that includes really two aspects what our domestic U S suppliers, who may themselves.
Speaker Change: Source material or components from China, or from Canada, or Mexico, but also domestic suppliers, who maybe haven't increased their capacity, but they are facing higher demand from customers and in both of those situations. We have seen some price inflation.
Speaker Change: From those aspects of kind of indirect impact and the good news is that I think we have a fair amount of experience across our team.
Speaker Change: In terms of adapting to a pretty changing tariff policy and I think also given the global nature of our business, we have quite a bit of flexibility to secure alternative supply and to be able to ship from different facilities around the world and finally in addition, I mean, we certainly will have taken pricing actions as necessary to offset inflation.
Speaker Change: <unk> that we can't otherwise mitigate.
Speaker Change: I appreciate that maybe just lastly, I think it was you and.
Darrin: Darrin, both touch and.
Speaker Change: The expectations for some new product Rollouts this year.
Speaker Change: Is that pace.
Speaker Change: Different from the last couple of years, I know, you're pretty robustly and rolling out products.
Speaker Change: Products last year, just wondering any more color you can provide on <unk>.
Speaker Change: Still your Thunder on the new product Rollouts will you just kind of the pace of the rollout.
Speaker Change: Yeah, No I wouldn't say different I mean, it's a bit episodic on the timing and the kind of complexity of the development efforts, but we have a pretty robust.
Speaker Change: Our innovation program, we continue to invest.
Speaker Change: We believe appropriately and as I say the first half of this fiscal year has been more focused on commercializing the new products that we did launch in fiscal 'twenty four and we have seen good customer reception and good commercial ramp from those and then I think you can.
Speaker Change: To see more innovation launches in the second half and obviously more into as well in the first half of fiscal 'twenty six, but we certainly remain committed to bringing innovative products and technology to the market for our customers.
Speaker Change: Pretty excited about the pipeline that we have thought.
Speaker Change: I appreciate it looking forward to seeing your new offices. This year. So best of luck I appreciate the time.
Speaker Change: I'll be there in a week or less thanks, Tom.
Speaker Change: Again, if you'd like to ask a question. Please press star one on your telephone Keypad. Your next question comes from the line of Steve Silver from Argus Research. Your line is open.
Steve Silver: Thanks, operator, and good morning, and congratulations in advance on the new headquarter opening next week.
Speaker Change: You guys talk good morning.
Speaker Change: Good morning, how are you guys.
Speaker Change: In the prepared remarks, you touched on <unk> and the positive impact that it's having in the Americas.
Speaker Change: I'm curious as to whether there's any color you can provide on the implementation progress in Europe, and maybe where you are in the process as compared to in the Americas.
Speaker Change: Okay.
Speaker Change: Sure. So we actually started the rollout and implementation of <unk> in your I.
Speaker Change: I guess about one or two quarters ago now.
Speaker Change: And so I'd say, we're pretty pleased with the progress we're making there we've actually leverage one of our senior leaders who was deeply involved in the rollout of <unk> in the Americas region.
Speaker Change: And that person has now been charged with.
Speaker Change: Leading in directing their program is rolled out in EMEA as well so so.
Speaker Change: So I think because of that.
Speaker Change: We've seen really.
Speaker Change: Faster uptake and obviously, we've taken the lessons learned from.
Speaker Change: The rollout in the Americas as we apply it into EMEA. So.
Speaker Change: So overall I think I think we're pleased with the progress, we're making and we expect that it'll ultimately over time drive similar levels of impact in the European region.
Speaker Change: To recount what it's about again I mean, it's really about aligning our growth focus with our strategic direction is around this consistent commercial commercial approach that's driven by very focused sales activity I would say, particularly end user focused.
Speaker Change: Cause from our sales team as opposed to kind of managing the channel if you will.
Speaker Change: We have seen it drive what I would classify as really a winning positive culture thats driven in the case of <unk> really by data by disciplined collaboration and frankly, it's allowing us in the business to deliver more predictable performance because we can now track from actions to results and so there's a lot more detail behind what <unk>.
Speaker Change: He is in the program and how we've implemented it but I think those are some of the key benefits that we're seeing come to the floor.
Speaker Change: That's helpful. Thanks, and one more if I may on previous calls you've discussed the digital transformation of the business and the.
Speaker Change: Progress in your e-commerce initiatives I'm curious as to whether there's any update you could give on the direct business.
Speaker Change: Yes, yes, we're actually absolutely quite pleased with the progress. So if you recall I mean, we essentially rolled out.
Speaker Change: E Commerce program direct to end users.
Speaker Change: Just about three years ago, now and that has grown I would say substantially over that period of time admittedly off a small base and we remain I would say quite bullish about our E Commerce business in fact in Q2 of this fiscal year.
Speaker Change: Our E Commerce business was up 43% year over year and through the first half of fiscal 'twenty five E Commerce revenue was up 36%.
Speaker Change: More recently.
Speaker Change: We've done a lot of work to rollout e-commerce and other parts of the world. So last year in multiple markets in Europe and more recently in Australia, and then just in the last quarter, we actually invested behind and turned on digital advertising in both of those markets UK and Australia, which we saw drive very <unk>.
Speaker Change: <unk> growth in website traffic, which is a pretty good for us leading indicator of what we expect to see in terms of order inflow.
Speaker Change: And in the months to follow so overall I think quite positive and we're pleased with the progress we're making there.
Speaker Change: Great. Thank you so much for all the color.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of will <unk> from CJS Securities. Your line is open.
Speaker Change: Okay.
Speaker Change: Just a follow up and thank you for your time today with two quarters left how should we think about the cadence of revenue margins and profitability from Q3 to Q4 embedded in your FY 'twenty guidance.
Speaker Change: Yes, So you think about our second half.
Speaker Change: That is incremental revenue.
Speaker Change: Heavily weighted towards the second half. So typically there is some above that 42% of revenue in the second half so with that comes a volume leverage and the increase in the EBITDA margins typically if you look at history. When you look at our guide we would expect to see our strongest margins in Q4.
Speaker Change: So we will ramp as we go into the second half of the year here.
Speaker Change: Very helpful. Thank you and then just one more do you have any incremental updates on the M&A pipeline and what parts of the portfolio are you most focused on enhancing thank you.
Speaker Change: Sure Yeah, I would say we continue to spend I would say we continue to spend a fair amount of time on M&A activity.
Speaker Change: And we have what I would classify as a pretty good kind of quantity and quality of targets in our funnel.
Speaker Change: With good active conversations so.
Speaker Change: I'd say, that's fairly robust the process that we exhaust is also quite robust so.
Speaker Change: I continue to be pleased with the activity there obviously by its nature, it's episodic so.
Speaker Change: Things will come and go depending on asset availability and timing and the like.
Speaker Change: I don't know that we've really seen anything in terms of <unk>.
Speaker Change: Cereal changes in valuation expectations at this point in the market, but we remain focused on the same sort of targets that we've talked about previously certainly very high quality businesses.
Speaker Change: Strong gross margins with the ability to drive accretion of those gross margins over time.
Speaker Change: The core strategic fit with <unk>.
Speaker Change: Not necessarily kind of mirroring exact things that we do today, but more complementary.
Speaker Change: Products and services to what we offer today, where we can sell a broader basket of goods and services to our existing customer base and I think DTA what would be a real Prime example of that very simply.
Speaker Change: Complementary to <unk> and that we offer now at TCA horizontal movement of heavy loads, whereas before it was only vertical lifting and we have customers where that neat applications for both so.
Speaker Change: So I think the funnel remains robust we are spending a lot of time there.
Speaker Change: And obviously, when if and when we can announce things certainly we will but.
Speaker Change: It's a key part of our overall growth strategy and we're excited about that and finally I would say.
Speaker Change: We continue to have a very healthy balance sheet.
Speaker Change: Is there to be able to support anything we need to do fundamentally from a capital allocation perspective, including M&A activity.
Speaker Change: Yeah.
Speaker Change: Thanks again.
Speaker Change: And that concludes our question and answer session I will now turn the call back over to CEO, Paul Sternly for closing remarks.
Speaker Change: Okay, well, thanks again for joining us this morning.
Speaker Change: We'll be presenting at the Wolfe Research Smid Conference in New York in early June and we hope to see you. There. Thank you again and have a good date.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
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