Ladies and gentlemen, thank you for standing by. Welcome to the Interpac Tool Group's third quarter Fiscal 2025 Earnings Conference Call. As a reminder, this conference is being recorded June 27, 2025. It is now my pleasure to turn the conference over to Travis Williams, Senior Director of Investor Relations. Please go ahead, Mr. Williams.

Thank you, Operator. Good morning, and thank you for joining us for Interpac Tool Group's third quarter Fiscal 2025 Earnings Call. On the call today to present the company's results are Paul Sternle, President and Chief Executive Officer, and Darren Kozik, Chief Financial Officer. The slides referenced on today's call are available on the Investor Relations section of the company's website, which you can download and follow along. A recording of today's call will also be made available on our website. 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. 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 filings. Now I'll turn it over to Paul.

Thanks, Travis. Good morning and welcome from our new headquarters at the Enerpac Center in downtown Milwaukee. We were pleased with our performance in the quarter. Two of our three geographic regions, along with the Cortland Biomedical Business, posted strong growth. Including the acquired DTA business, total year-over-year revenue growth was 6%. While this represented record third quarter revenue since the relaunch of Enerpac Tool Group in 2019, we are taking a cautious posture entering the fourth quarter, given the increasing level of economic and geopolitical uncertainty. Nonetheless, we believe Enerpac can continue to outperform its industrial peers in what remains a very soft sector. In a moment, I will talk more about the actions we are taking to advance our innovation strategy and provide an update on DTA.

But first, Darren will provide more detail on the quarter, our fiscal 2025 guidance, and the impact in our response to tariffs thanks paul as seen on slide three enter packs revenue increased six percent on a reported basis to 159 million in the third quarter of 2025. on an organic basis adjusting for foreign exchange in the acquisition of vca we grew two percent at our itns business revenue increased 1.5 percent organically year over year both our product and service business a screw this quarter with 1% growth in product sales and 3% growth in services. We continue to implement Interpac Commercial Excellence, or ECX, across our portfolio. We believe this will add rigor and discipline to our sales process and funnel management, which we believe will contribute to our above-market growth. Cortland Biomedical reported in our other segment posted growth of 19% with good performance of existing products and market reception to new product launches. In particular, we enjoyed strength and sales to customers in diagnostics, bioprocessing, and robotic surgery. Cortland continues to partner with customers to develop innovative solutions with several quotes and prototype orders in the works from existing and new customers. Turning to slide four, which shows our growth by geography, we delivered another strong quarter in the Americas with high single-digit organic growth. The growth was driven by demand for our standard products and services. While there has been a bit of softness in the rail and general industrial manufacturing sectors, we've seen particular strength in aerospace, infrastructure, and service for the nuclear industry. We believe these industries align with Enerpac's product portfolio and service offerings. In the APAC region, we continue to generate solid performance as it enjoyed mid-single-digit growth in the third quarter. A particular strength in the quarter was our heavy-lifting technology for HLT business. From a vertical market perspective, we are benefiting from major rail projects and maintenance needs in Thailand, Japan, and the Philippines. We also see growth opportunities in solar farms in Vietnam and wind projects in Japan. At the same time, there are some more challenged end markets, including the steel industry in South Korea and refining petrochemicals in China. In the EMEA region, we posted a high single-digit decline organically, driven by a decline in our HLT business, which had a strong performance in the year-ago period and, as we said, tends to be lumpy. From a vertical market perspective, we are seeing strength from the infrastructure market and are benefiting from higher defense budgets, spending in the oil and gas sector, and ongoing wind projects. However, we are seeing some softness in our service revenue in Europe and the effect of an overall economic slowdown in western europe turning to slide five gross profit margin declined 140 basis points year-over-year to 50.4 percent this decline was attributable to our service project mix and the inclusion of vta partially offset by higher margins at cortland biomedical while we've continued to experience pressure on service margins from the project mix on a year over year basis we did enjoy sequential improvement based on actions taken earlier this year to focus on migrating to a more differentiated and value-added service opportunities we've also taken specific actions including investing in equipment to support high marks and service lines refining our fixed cost base to ensure each site is generating appropriate returns and changing our business model in certain countries all designed to improve service business margins on the selling general and administrative lines adjusting for the restructuring charge and M&A expense, adjusted SG&A improved 160 basis points year-over-year to 25.5% of sales. In light of the current soft market conditions, we recorded a restructuring charge of $5.9 million in the quarter, of which approximately three-quarters is people-related severance to further right-size our cost structure. Additionally, these restructuring actions are another step towards increasing the efficiency of our SG&A spend as we continue to standardize and automate processes. The remainder of the restructuring charge is a non-cash lease impairment associated with our headquarters relocation. We will continue to watch SG&A spending closely in the current environment. As a result, adjusted EBITDA increased 3.4% for the third quarter. The margin declined 50 basis points year-over-year to 25.9% due to the mix of service projects and the inclusion of VTA. Our core IT&S product portfolio margin remains strong in the current environment, pointing to the resiliency of our brand. Adjusted earnings per share increased 9% to $0.51, driven by higher earnings, a lower effective tax rate, and reduced share count. For the full year fiscal 2025, our earnings guidance remains the same, with net sales of $610 million to $625 million, representing total revenue growth of three to six percent and organic growth of zero to two percent adjusted evita is expected to be in the 150 to 160 million dollar range however based on year-to-date results and current macroeconomic and geopolitical conditions we anticipate delivering towards the lower half of the range turning to the balance sheet shown in slide seven enter packs position remained extremely strong. Net debt was $50 million at quarter end, resulting in a net debt to adjusted EBITDA ratio of 0.4. Total liquidity, including availability under a revolver and cash on hand, was $539 million. Through the first three quarters of fiscal 2025, cash flow from operations was $56 million, compared with $37 million in the year-ago period. Free cash flow of 40 million increased 24 percent despite 11 million in incremental capital spending primarily associated with the headquarters relocation in addition to our headquarters we continue to invest in automated manufacturing capabilities to improve the efficiency and drive additional productivity for the full year we are maintaining our free cash flow guidance at 85 to 95 million in the third quarter the company repurchased approximately 330 000 shares of common stock totaling $14 million. As we continue to generate cash, coupled with our current leverage, we have ample capacity to deploy capital for a disciplined M&A strategy, as well as internal investments and continued opportunistic share repurchases. Turning to slide eight, we understand that the impact of the U.S. care policy and associated uncertainty it has created is top of mind for investors. While the situation is fluid, we believe that Enerpac is well positioned to manage the impact given our global footprint and diverse supply base. The majority of our imported finished goods and components come from four countries. Netherlands, where we manufacture our HLT products, China, the UK, and Spain. The Netherlands and China make up the bulk of our U.S. imports that are subject to duties. We import a total of approximately $50 million in finished goods and components into the U.S. that are subject to tariffs. Under the current tariff framework, we estimate an annualized tariff impact of $18 million, which represents an incremental $12 million relative to the total tariffs paid in fiscal 2024. In addition to these quantifiable direct impacts, we anticipate additional cost pressure on our U.S.-based suppliers who are importing components and raw materials. We believe we will be able to mitigate the majority of the impact. As noted on the second quarter earnings call, we implemented a low to mid-single-digit price increase at the end of March. And in May, we implemented a low single-digit surcharge in the U.S. to offset the announced tariffs. These pricing actions have been understood and accepted by our customers. Additionally, given the global nature of our business, we have the flexibility to secure alternative suppliers. We expect these actions to support our goal of remaining at least price-cost neutral. role. What we cannot calculate at this juncture is any impact of economic uncertainty and potentially slower growth on the revenue line. That said, we will continue to pursue our strategy focused on driving profitable growth and outperforming the industrial market. We will also continue to carefully manage expenses, as appropriate, to align our cost structure with market conditions in support of long-term success. With that, let me turn it back to Paul.

Thanks, Darren. Over the past couple of years, we have talked about a series of Interpac's differentiated new products and the strong reception in the marketplace. We are proud of our revamped innovation process, one based on listening to and working hand-in-hand with customers to build solutions that address their challenges, help solve their problems, and fulfill their unmet needs. With the company's relocation to the Interpac Center, we have invested in our new innovation lab, dedicating a significant portion of the new facility to take our innovation and R&D capabilities to the next level. And as shown on slide nine, we have added a variety of new equipment and technologies, including 3D printers, CNC mills, CNC lathes, ways, and cutting and machining capabilities, enabling our team to innovate even faster than before with far less reliance on outside vendors. In fact, what used to take a month or more can now be accomplished in as quickly as one week or even one day. We believe this provides a further competitive advantage for Enerpac. Let me also mention the heavy lifting technology we gained with the acquisition of DTA in September of 2024. As we have said, DTA adds the highly complementary horizontal movement capability to our existing vertical heavy lifting technology. Deliveries from DTA have been slower to ramp than expected as we continue to help DTA improve their operational capabilities to work through an expanded order book. We remain confident that this is where Interpac's efficient manufacturing and supply chain expertise will add value, and on a commercial basis, we are excited by DTA's performance to date. Orders are robust and backlog is expanding as we successfully implement our strategy to cross-sell DTA solutions across the existing Interpac base and expand sales beyond its traditional stronghold in Europe. As I said at the top of the call, we have moved and are settling into our new downtown Milwaukee headquarters, it is clear already that the move is achieving our goal of creating a more vibrant environment and collaborative culture, one that inspires our teams to advance customer-driven innovation, achieve continuous improvement, and execute our growth strategy. With that, we'd be happy to take questions.

To ask a question, simply press star followed by the number one on your telephone keypad. Again, that is star one to ask a question. And we'll pause for a moment to compile the Q&A roster. Our first question comes from the line of Daniel Moore with CJS Securities. Please go ahead.

Hi, Paul and Darren. This is Will on for Dan. Could you add some more color? Hi, good morning. Could you add some more color to what you are hearing from your customers in real time? And how are they managing or reacting to tariffs and macro uncertainty? Are they putting projects on hold? Have you seen an uptick in order cancellations?

Well, yeah, I'd say, I mean, obviously, it's a very dynamic environment. I think it definitely varies depending on the customer and the end market. We've not seen any meaningful movement in terms of project cancellations from our perspective. I think we do have customers certainly that are being cautious or evaluating, you know, large capital investment decisions, you know, just in light of the uncertain environment that we're in. But I think, you know, the positive side there is that companies do need to invest, you know, for capacity and growth. I think, again, some may be waiting just to see how things shake out in the current environment and the tariff situation, but the underlying needs are there. So, again, I think it varies depending on the end market, but we've not seen any meaningful signs of any sort of project cancellations from that perspective. And then from a pricing standpoint, I think, you know, you know, Darren referenced in the remarks earlier, I mean, we have taken some pricing actions from our, you know, to at least offset the inflationary, you know, aspect we saw from some of the recent tariff And I think by and large, at least through the channel, we've seen some good indication that channel partners seem to be passing that along to their customers, and that's generally our understanding.

Thank you. Super helpful. And did you see any revenue being pulled forward at all in Q3 in anticipation of tariffs? And what are your thoughts on the level of inventory in the channel today?

Yeah, I wouldn't say anything extremely meaningful. There probably was a little bit of buy-in. We obviously give some advance notice, of course, to our customers on some of the pricing actions that we took in the quarter. But I wouldn't say that there was anything hugely significant from our perspective that we could see at this point in time.

Thank you. And then just one more. Could you provide any more additional detail regarding the restructuring actions during the quarter? And what is the anticipated cost savings? Thank you.

Sure. You know, from a restructuring perspective, we've been keeping a close eye on expense levels and to level set everyone. This is not a programmatic activity like Ascend or anything of that nature. We just looked at the global uncertainty, geopolitical risk, and, you know, decided it was time to take some of those cost actions. Now, we do believe, you know, we've got automation and process standardization underneath, which is going to help us scale at the back end of these actions. So that was the landscape for the cost piece. Now, to remind everyone, three-quarters of that was severance for people, and about a fourth of that was a non-cash lease impairment charge associated with our move to downtown Milwaukee. So, we think that's a good foundation for the future.

Thank you.

Thank you.

Our next question comes from the line of Tom Hayes with Ross Capital Partners.

Good morning, guys. Thanks for taking the call.

Good morning, Tom.

Hey, Darren, maybe one more question on the pricing actions you guys took. Were those implemented in the quarter, and then did you see the positive impact or those pricing actions going into effect in the quarter?

You know, we took one in March and one in May. So, you know, some of those started to trinkle in throughout the quarter, but the real impact will be in the upcoming quarter, in the fourth quarter we're in now. Okay.

And then, Paul, on the North American performance of high single digits, I may have missed a little bit. I think he called out aerospace and one other segment kind of helped drive that action.

Yeah, I mean, we did see, I think, good performance, Tom, in those sectors. Obviously, as you know, we have pretty diversified end markets that we ultimately serve either directly or through our channel. We do think that's one of the kind of competitive advantages of Enerpac is that we do have a very diverse set of customers in end markets. So, in my view, we're not overly reliant on any single end market, and one may be up, one may be down, et cetera. But that's what we saw in the quarter, and obviously we'll continue to monitor. Clearly, it's a very dynamic environment.

Okay. I guess one more along those same lines, and I think it's buried in the one big, beautiful bill. I'm just wondering your thoughts on your wind business. It seems that a lot of the renewable energy credits are maybe on the chopping block. Do you see any feedback you're getting from your wind customers as far as the outlook for that market?

Yeah, I mean, we still look fairly, I would say, positively at the wind market. We did say, or I think Darren said in the remarks in the EMEA region, that we did see some benefit actually in the quarter from ongoing wind projects, particularly in the EMEA region. So we still see fairly good demand profiles there. Certainly, I would say it is and has historically been stronger in Europe than in the U.S. That said, I think we still see opportunities here in the U.S. market. Some of the recent changes from administration here, I think, are more favorable than we initially expected. So we continue to put focus and resource behind that as appropriate. And we haven't changed our overall strategy. But at the same time, as you know, we have a focus on, you know, several kind of core vertical markets, including infrastructure, and we continue to see that play out well in terms of the investment. levels that are going into that sector, as well as rail, where we continue to innovate for our customers, including some of the new products that we've talked about this quarter. So we continue to apply focus in those other markets as well.

Okay, I appreciate the call. But just lastly, with the current tariff environment and maybe kind of a more sluggish industrial environment, have you seen any change in the appetite for M&A? Obviously, no, it takes two to get a transaction done, but just any change in the environment for that?

Yeah, I would say, I mean, you know, broadly speaking, from our perspective, the answer is no. We remain, you know, focused and committed to M&A as part of our overall growth strategy, as we've talked about multiple times. We continue to be very active on that front in terms of managing and proactively moving forward opportunities in our M&A funnel. I think from the end market perspective, we do see interest and appetite from potential sellers to engage in discussions. You know, and so I'd say from that standpoint, really nothing has changed. um certainly you know our focus on remaining highly disciplined however um you know that as well has not changed so um you know anything that we do has to be um you know extremely rigorous in terms of meeting uh both strategic and financial hurdle rates and uh and i would say you know we're certainly not afraid to walk away from things that don't meet those criteria or where the valuation expectations are simply unreasonable. But we can continue to remain very active on that front.

Great. I appreciate the time this morning. Thank you.

Thank you.

Thanks, Tom. Our next question comes from the line of Ross Sveremblick with William Blair. Please go ahead.

Hey, good morning. This is Sam Carlevan for Ross. Thanks for taking my questions.

Morning, Sam.

So you provided a gross annualized tariff impact of $18 million, but is there any way to frame what the net impact of tariffs is expected to be in the fourth quarter and fiscal 2026?

You know, I think when we look at the tariff, obviously you saw, you know, we laid out where the $50 million comes. I think from our goal for Enerpac is to really remain price-cost neutral. So that's kind of the premise that we've had throughout this as the tariffs go up and down. You know, even in the second wave of tariffs that did come in, we purposely launched a surcharge so we could kind of flex and be nimble with the market. But our goal remains to be price cost control.

Okay, that's helpful. And then just a couple on DTA. It looks like DTA sales were better than expected in the quarter, but still trending below the 20 million euro guidance. Has your expectation for the 20 million euro guidance changed?

Yeah, here's what I would say, Sam. I think the integration of DTA is continuing to go quite well. We're pleased with the progress we've made and certainly continue to be pleased with the underlying investment thesis and the progress on the acquisition. I do think that the business will likely come in a bit shy of our original revenue guidance for the year. But that said, revenue has increased on a sequential basis, particularly as Interpac's operational discipline and our supply chain expertise is helping them improve their throughput in their facility in Spain. So we're continuing to see good progress there. I'd say probably more importantly, particularly on a commercial basis, orders at DTA are extremely strong, and we're seeing that play out in terms of the very successful cross-selling of their, you know, horizontal movement technology to our Enerpac's existing distributor and customer base. And so for the year, I would say orders are tracking to more than 20 million euros.

Got it.

That's helpful.

And then kind of a follow-up to that, how do tariffs impact or U.S. tariffs on Europe impact DTA's cross-selling ability into the U.S.?

I mean, certainly they'll be subject to tariffs because currently the equipment and the vehicles are produced in Spain. So that said, we do see plenty of appetite from customers and opportunities here in the U.S. market. By the way, our HLT products are made in Europe and the Netherlands as well. Those are subject to the U.S. tariffs. But we've not seen, I would say, any diminishing demand profile from U.S. customers for that equipment. So I think we continue to have a fairly optimistic outlook both for HLT and for ETA here in the U.S. market. Got it. That's helpful.

I'll leave it there. Thanks, guys. Thank you.

And our final question comes from the line of Steve Silver with Argus Research. Please go ahead.

Thanks, Operator, and thanks for taking my questions. I was hoping you guys could put some context around the pipeline size and the scalability for the new in-house innovation lab, and maybe just some thoughts around previous new products, whether most of those were using outsourced vendors compared to your previous in-house capabilities, and maybe the thoughts on the potential impact on overall R&D costs, given the high number of SKUs in the portfolio?

Yeah, good morning, Steve. Thanks for the question. Look, I think, you know, historically, it was really a mix. Certainly, we had some in-house capabilities for prototyping previously before moving to our new headquarters in this innovation lab that we set up here, but we did utilize a lot of external vendors and services. And to some degree, that will still be required, of course, especially for specialty-type services. But we're certainly pretty excited about the investment we've made in this innovation lab. And while I think there will be ultimately some cost advantages, and of course, in the slides, we highlighted a case study example of that, I think my view is that the much more significant benefit will be, you know, the time improvement that we make in terms of bringing new products to market. You know, we're able to, you know, dramatically reduce the time that it takes to prototype components and parts, literally, you know, from weeks to days or days to hours, as we talked about in this case study, through the capital investments that we made in the facility here. So I do expect that that will help increase the overall pace of our innovation and how quickly we can bring things to market. I know our team is extremely excited about that, and they've already gotten to work, as you can see, in utilizing these new tools and capabilities that we've added to our innovation lab. So I think from our perspective, it was a great investment. I think it will ultimately have a really strong return, both from a measurable dollars perspective, but ultimately, you know, the impact on our innovation rate.

Great. That's helpful. And on a similar note, you guys mentioned on the last call that the first half of fiscal 25 was more focused on commercializing some of the fiscal year 24 launches, but that the second half of 25 would be more focused on new product innovation. Curious as to how Q3 played out compared to your expectations.

Yeah, I think that's right. You know, we certainly spent, I would say, more focus in the first half on continuing to commercialize some of the new products we launched in fiscal 24. And we're seeing that good progress. Many of the products we launched are continuing to ramp commercially and globally to good effect. And we're certainly excited about that. And we've added new capabilities and new launches to enhance or add complementary aspects to some of those new products. As an example, for our BTW product that we launched last fiscal, we've now launched calibration benches so that customers can get those products calibrated in region. And we were actually able to sell some of that calibration technology to some of our channel partners as well so that is complementary to the launch of the BTW but then here in the second half and in Q3 we have brought the new products to market for example in the rail industry our team created a solution for pulling nails out of ridges which really combines our new Enerpac pin pullers with a battery pump hoses couplers and a custom made interface socket that connects with that pin puller. So that's a new product that we launched here in Q3 that specifically focused on the rail market. And that's just one example. So I think we continue to have a good mix between focus on commercialization and ramp for products we've launched, but also bringing new products to market. You know, I'd say particularly focused on our key verticals that we've talked about.

Great. Thanks for all the color and best of luck the rest of the year navigating the challenging markets. All right.

And this concludes our Q&A session. I will now turn the call back over to Paul for closing remarks.

Okay. Well, thanks again for joining us this morning. InterPAC will be participating in the CJS Annual New Ideas Summer Conference on July 10th and the Seaport Research Partners Annual Summer Conference on August 19th and 20th. We hope to see you there. Thank you, and have a great weekend.

Thank you, everyone, for joining. This does conclude today's conference. You may now disconnect.