Enerpac Tool Group Reports Third Quarter Fiscal 2022 Results

Third Quarter of Fiscal 2022 Continuing Operations Highlights^*

• Net sales were $152 million, representing a 10% year-over-year increase in core sales driven by continued strong and broad-based demand in most regions; the strengthening of the US dollar reduced sales by 4%
• GAAP operating margin was 4.4% and adjusted operating margin was 9.0%
• Adjusted EBITDA margin was 12.0%
• GAAP diluted earnings per share (“EPS”) was $0.07 and adjusted diluted EPS was $0.16
• Results reflect an $11 million increase in accounts receivable reserves related to an agent in the Middle East/North Africa/Caspian (“MENAC”) region ($0.14 per share, after tax), which had an unfavorable impact of approximately 720 basis points on adjusted EBITDA margin
• Leverage (Net Debt to Adjusted EBITDA) was 1.1x at May 31, 2022
• Purchased approximately 1.8 million shares at an average price of $20.65, for a total of approximately $36 million under our share repurchase program announced in March 2022
• Refined full year guidance for fiscal 2022
  
  
  
  ^*This news release contains financial measures in accordance with US Generally Accepted Accounting Principles (“GAAP”) in addition to non-GAAP financial measures. Reconciliations of the GAAP to non-GAAP historical financial measures can be found in the tables accompanying this release.

Enerpac Tool Group Corp. (NYSE: EPAC) (the “Company”) today announced results for its fiscal third quarter ended May 31, 2022.

“Our solid third quarter sales and profit (excluding the impact of the increase in receivable reserves) were the result of continued broad-based demand and strong execution by our team across our global footprint,” said Paul Sternlieb, Enerpac Tool Group’s President & CEO. “Throughout the quarter, we continued to navigate a challenging macroeconomic environment, including ongoing supply chain and inflationary pressures as well as managing through the Ukraine conflict and the COVID lockdown in China. I am pleased with our team’s ability to remain focused on serving our customers and creating value for all our stakeholders. In alignment with our capital allocation strategy, we purchased approximately 1.8 million shares in the third quarter under our recently announced repurchase authorization. With our ASCEND transformation program well underway, I am encouraged by the momentum it has already generated, thanks to the hard work of our employees across all levels of the organization.”

• Consolidated net sales for the third quarter of fiscal 2022 were $151.9 million compared to $143.1 million in the prior year third quarter. Core sales improved 10% year over year, with product sales up 12% and service revenues up 1%. The impact from foreign currency exchange rates reduced net sales by 4% in the quarter.
• Fiscal 2022 third quarter net income and diluted earnings per share were $4.1 million and $0.07, respectively, compared to net income and diluted EPS of $25.3 million and $0.42, respectively, in the third quarter of fiscal 2021. Fiscal 2022 third quarter net income included:
  • A restructuring charge of $0.5 million ($0.4 million, or $0.01 per share, after tax) attributable to further actions to flatten and simplify the organizational structure;
  • ASCEND transformation program charges (“ASCEND charges”) of $3.9 million ($3.0 million, or $0.05 per share, after tax) primarily related to the use of external services for support in the design and development of the program;
  • Leadership transition and Board search charges of $2.8 million ($2.5 million, or $0.04 per share, after tax);
  • Business review charges of $0.5 million ($0.3 million, or $0.01 per share, after tax) related to external support for the deep dive business review prior to the launch of ASCEND; and
  • A gain on the sale of a facility, net of transaction charges, of $0.6 million ($0.5 million, or $0.01 per share, after tax) related to footprint rationalization.
• Fiscal 2021 third quarter net income included:
  • Restructuring charges of $1.6 million ($1.3 million, or $0.02 per share, after tax);
  • Leadership transition and Board search charges of $0.6 million ($0.4 million, or $0.01 per share, after tax);
  • Gain on sale of facility, net of transaction charges of $5.4 million ($2.4 million, or $0.04 per share, after tax) related to the sale of a large manufacturing facility in China as part of our footprint rationalization; and
  • Tax benefits of $7.5 million ($0.12 per share) related to the release of uncertain tax positions upon closure of income tax audits.
• Excluding the items detailed above, adjusted diluted EPS was $0.16 for the third quarter of fiscal 2022 compared to $0.28 in the comparable prior year period.
• Consolidated net sales for the nine months ended May 31, 2022 were $419.4 million, compared to $383.2 million in the comparable prior year period. Core sales increased 12% year over year, while the net impact of foreign currency reduced net sales 2%.
• Fiscal 2022’s net income and diluted EPS for the nine months ended May 31, 2022 were $9.4 million and $0.15, respectively, compared to net income and diluted EPS of $33.7 million and $0.56, respectively, in the comparable prior year period.
• Fiscal 2022 third quarter results reflect a $10.8 million increase in receivable reserves ($0.14 per share, after tax) related to an agent in the MENAC region. The issue is specific to this agent and is not indicative of the market or any other agents with which the Company works. The Company continues to do business in the impacted country directly with end customers and is no longer working with the individual agent.

• Third quarter fiscal 2022 net sales were $140.4 million, 5% higher than the prior fiscal year’s third quarter net sales. Core sales increased 9% year over year.
• The increase in revenue is attributable to the continued global market recovery from the COVID-19 pandemic in addition to the impact of pricing actions taken to offset inflationary pressures.
• Adjusted operating profit margin decreased year over year to 13.8%, primarily due to an additional receivable reserve in the MENAC region, which had an unfavorable impact of 770 basis points on adjusted operating profit margin.

Corporate Expenses and Income Taxes from Continuing Operations

• Corporate expenses were $13.7 million and $1.0 million for the third quarter of fiscal 2022 and fiscal 2021, respectively.
• Adjusted corporate expenses⁽²⁾ of $6.7 million for the third quarter of fiscal 2022 were $0.9 million higher than the comparable prior year period expense of $5.8 million, primarily due to insurance costs slightly offset by restructuring savings.
• The fiscal 2022 third quarter adjusted effective income tax rate from continuing operations of approximately 22% was higher than the third quarter fiscal 2021 adjusted rate of approximately 3%.

Discontinued Operations

Discontinued operations represent the impacts from certain retained liabilities associated with the divestiture of the former EC&S segment on October 31, 2019.

Net debt at May 31, 2022 was approximately $81 million (total debt of $205 million less $124 million of cash), which increased approximately $39 million from February 28, 2022. Net Debt to Adjusted EBITDA from continuing operations was 1.1x at May 31, 2022. The company purchased approximately 1.8 million shares of its common stock in the third quarter of fiscal 2022 at an average price of $20.65 for a total of approximately $36 million under its share repurchase program announced in March of 2022.

^{**Calculated in accordance with the terms of the Company’s March 2019 Senior Credit Facility}

Outlook

Mr. Sternlieb continued, “As we move into the last quarter of fiscal 2022, we believe we are well positioned within our markets to further capitalize on improving demand. We are also keenly focused on executing the initiatives in our ASCEND transformation program to unlock significant opportunities for value creation across the organization, which we expect will generate incremental adjusted EBITDA of $40 to $50 million and will cost $60 to $65 million^*** over the life of the program.

“Should we begin to see markets soften, we expect our transformation efforts, which are already underway, will position us well. We continue to proactively manage inflationary pressures and supply chain issues that impact our business and expect these challenges to persist for the foreseeable future. Due to the ongoing impact of the stronger US dollar, we have refined our full year net sales guidance range to $560 to $570 million from $560 to $580 million. In addition, we expect incremental adjusted EBITDA margins^**** of 35% to 45% excluding the impact of foreign currency and the incremental receivable reserve in the third quarter related to a MENAC agent.”

Mr. Sternlieb concluded, “We are continuing the important work of accelerating growth, improving operational excellence, and creating a more efficient and agile organization, and we remain confident in our abilities to be successful as we drive toward Enerpac Tool Group’s next phase of growth and profitability.”

<sup>***Approximately $6 to $10 million is expected to be attributed to restructuring cost

****Incremental (or decremental) adjusted EBITDA margin is equivalent to the change in adjusted EBITDA divided by the change in Net Sales for the comparable periods.</sup>

Conference Call Information

An investor conference call is scheduled for 10:00 am CT today, June 28, 2022. Webcast information and conference call materials, including an earnings presentation, are available on the Enerpac Tool Group company website (www.enerpactoolgroup.com).

Safe Harbor Statement

Certain of the above comments represent forward-looking statements made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. Management cautions that these statements are based on current estimates of future performance and are highly dependent upon a variety of factors, which could cause actual results to differ from these estimates. Among other risks and uncertainties, Enerpac Tool Group’s results are subject to risks and uncertainties arising from general economic conditions, supply chain risk, material and labor cost increases, the COVID-19 pandemic, including the impact of the pandemic or related government responses on the Company’s business, the businesses of the Company’s customers and vendors, employee mobility and whether site-specific health and safety concerns related to COVID-19 might require operations to be halted for some period of time, volatile oil pricing, variation in demand from customers, the impact of geopolitical activity on the economy, including the invasion of Ukraine by Russia and international sanctions imposed in response thereto, continued market acceptance of the Company’s new product introductions, the successful integration of acquisitions, the impact of restructurings, the ability of the Company to achieve its plans or objectives related to the ASCEND program, including any assumptions underlying its calculation of expected incremental adjusted EBITDA, operating margin risk due to competitive pricing and operating efficiencies, tax law changes, foreign currency fluctuations and interest rate risk. See the Company’s Form 10-K for the fiscal year ended August 31, 2021 filed with the Securities and Exchange Commission for further information regarding risk factors. Enerpac Tool Group disclaims any obligation to publicly update or revise any forward-looking statements as a result of new information, future events or any other reason.

Non-GAAP Financial Information

This press release contains financial measures that are not measures presented in conformity with GAAP. These non-GAAP measures include EBITDA from continuing operations, adjusted EBITDA from continuing operations, adjusted earnings from continuing operations, adjusted diluted earnings per share from continuing operations, adjusted operating profit from continuing operations, segment adjusted operating profit, free cash flow and net debt. This press release includes reconciliations of historical non-GAAP measures to the most comparable GAAP measure, including in the tables attached to this press release. This press release does not include a quantitative reconciliation of non-GAAP measures presented for any future period as such a reconciliation is not practicable. Such future-period measures are presented in a manner consistent with the presentation thereof for historical periods. Management believes the non-GAAP measures presented in this press release are commonly used financial measures for investors to evaluate Enerpac Tool Group’s operating performance and financial position with respect to the periods presented and, when read in conjunction with the condensed consolidated financial statements, present a useful tool to evaluate ongoing operations and provide investors with metrics they can use to evaluate aspects of the Company’s performance from period to period. In addition, these are some of the financial metrics management uses in internal evaluations of the overall performance of the Company’s business. Management acknowledges that there are many items that impact a company’s reported results and the adjustments reflected in these non-GAAP measures are not intended to present all items that may have impacted these results. In addition, these non-GAAP measures are not necessarily comparable to similarly titled measures used by other companies.

About Enerpac Tool Group

Enerpac Tool Group Corp. is a premier industrial tools and services company serving a broad and diverse set of customers in more than 100 countries. The Company’s businesses are global leaders in high pressure hydraulic tools, controlled force products and solutions for precise positioning of heavy loads that help customers safely and reliably tackle some of the most challenging jobs around the world. The Company was founded in 1910 and is headquartered in Menomonee Falls, Wisconsin. Enerpac Tool Group common stock trades on the NYSE under the symbol EPAC. For further information on Enerpac Tool Group and its businesses, visit the Company's website at www.enerpactoolgroup.com.

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