Enerpac Tool Group Reports Second Quarter Fiscal 2022 Results

Second Quarter of Fiscal 2022 Continuing Operations Highlights*

• Net sales were $137 million, representing a 16% year-over-year increase in core sales
• GAAP operating margin was 3.3% and adjusted operating margin was 8.5%
• Adjusted EBITDA margin was 12.0%
• GAAP diluted earnings per share (“EPS”) was $0.03 and adjusted diluted EPS was $0.14
• Leverage (Net Debt to Adjusted EBITDA) was 0.6x at February 28, 2022
• Suspended sales into Russia in March to ensure compliance with sanctions imposed by NATO nations
• Updated full year guidance for fiscal 2022
• Launching ASCEND transformation program and announcing new share repurchase authorization to enhance shareholder value
  
  
  
  *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 second quarter ended February 28, 2022.

“We are pleased to have achieved year-over-year core growth in all regions and encouraged by the sequential growth over the first quarter, despite the ongoing supply chain and logistic challenges,” said Paul Sternlieb, Enerpac Tool Group’s President & CEO. “We continue to see improvements in demand across several of our end markets but remain cautious as we head into the back half of our fiscal year given the continuing supply chain challenges and the very dynamic macroeconomic environment.”

• Consolidated net sales for the second quarter of fiscal 2022 were $136.6 million compared to $120.7 million in the prior year second quarter. Core sales improved 16% year over year, with product sales up 16% and service revenues up 13%. The impact from foreign currency exchange rates decreased net sales by 2% in the quarter.
• Fiscal 2022 second quarter net income and diluted earnings per share were $2.1 million and $0.03, respectively, compared to net income and diluted EPS of $3.6 million and $0.06, respectively, in the second quarter of fiscal 2021. Fiscal 2022 second quarter net income included:
  • A restructuring charge of $1.8 million ($1.7 million, or $0.03 per share, after tax) attributable to further actions to flatten and simplify the organizational structure;
  • Impairment & divestiture charges of $1.1 million ($0.8 million, or $0.01 per share, after tax) related to intangible assets from historical acquisitions;
  • Business review charges of $2.5 million ($2.3 million, or $0.04 per share, after tax) related to external support for the deep dive business review;
  • Senior leadership transition charges of $1.7 million ($1.6 million, or $0.03 per share, after tax); and
  • Tax expense of $0.2 million ($0.00 per share) related to equity compensation deferred tax adjustments.
• Fiscal 2021 second quarter net income included an impairment & divestiture charge of $0.4 million ($0.3 million, or $0.01 per share, after tax), restructuring charges of $0.6 million ($0.6 million, or $0.01 per share, after tax); and tax benefits of $0.6 million ($0.01 per share) related to equity compensation deferred tax adjustments.
• Excluding the items detailed above, adjusted diluted EPS was $0.14 for the second quarter of fiscal 2022 compared to $0.06 in the comparable prior year period.
• Consolidated net sales for the six months ended February 28, 2022 were $267.5 million, compared to $240.1 million in the comparable prior year period. Core sales increased 13% year over year, while the net impact of foreign currency decreased net sales 1%.
• Fiscal 2022’s first half net income and diluted EPS were $5.3 million and $0.09, respectively, compared to net income and diluted EPS of $8.4 million and $0.14, respectively, in the comparable prior year period.

• Second quarter fiscal 2022 net sales were $125.9 million, 12% higher than the prior fiscal year’s second quarter net sales. Core sales increased 14% year over year.
• The increase in revenue is attributable to the global market recovery from the COVID-19 pandemic and to a lesser extent the impact of pricing actions taken to offset inflationary pressures.
• Adjusted operating profit margin decreased year over year to 12.4% primarily due to lower service mix/utilization and additional receivable reserves.

Corporate Expenses and Income Taxes from Continuing Operations

• Corporate expenses were $8.4 million and $6.3 million for the second quarter of fiscal 2022 and fiscal 2021, respectively.
• Adjusted corporate expenses⁽²⁾ of $4.3 million for the second quarter of fiscal 2022 were $2.0 million lower than the comparable prior year period, primarily resulting from lower equity/incentive compensation and insurance costs.
• The fiscal 2022 second quarter adjusted effective income tax rate from continuing operations of approximately 18% was higher than the second quarter fiscal 2021 adjusted rate of approximately 16%.

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 February 28, 2022 was approximately $42 million (total debt of $175 million less $133 million of cash), which decreased approximately $6 million from November 30, 2021. Net Debt to Adjusted EBITDA from continuing operations was 0.6x at February 28, 2022.

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

ASCEND Launch and Share Repurchase Authorization

In a separate release this morning, the Company announced the launch of the ASCEND transformation program focused on driving accelerated growth and EBITDA to enhance shareholder value. The Company also announced that the Board of Directors authorized a new share repurchase program of up to 10 million shares of the Company's common stock.

Outlook

Mr. Sternlieb continued, “As we move into the back half of our fiscal year, our focus is on successfully executing on our new ASCEND transformation program and accelerating shareholder value creation. Despite the strong quarter, the turmoil of global events in the last month and the resulting macroeconomic challenges have created second half headwinds and uncertainty in our markets, and as such we are adjusting our full year guidance for fiscal 2022.

“Factors such as the stronger US Dollar, which accounts for roughly half of the impact to our new net sales guidance, continued inflationary pressures, continued supply chain disruptions as well as greater supply chain difficulties resulting from the Russia-Ukraine conflict and, to a lesser extent product sold directly into Russia which has been suspended to comply with sanctions, have caused us to revise our full year sales guidance, to a new range of $560 to $580 million. While we have some potential tailwinds that could help support growth, we remain cautious. We continue to expect incremental EBITDA margins*** of 35% to 45% excluding the impact of foreign currency.”

***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.

Conference Call Information

An investor conference call is scheduled for 10:00 am CT today, March 23, 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, and 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 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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