Enerpac Tool Group Reports Second Quarter Fiscal 2023 Results, Increases Expected Ongoing Benefit From ASCEND Transformation Program, and Raises Full-Year Guidance

Second Quarter of Fiscal 2023 Continuing Operations Highlights^*

• Net sales were $142 million, with a 6% year-over-year increase in core sales; the strengthening of the US dollar reduced sales by 2% year over year
• GAAP operating margin was 9.8% and adjusted operating margin was 20.2%
• Adjusted EBITDA margin was 22.7%, an increase of nearly 1,100 basis points year over year
• Reported record gross profit margins and adjusted EBITDA margins since launch of Enerpac Tool Group in 2019
• GAAP diluted earnings per share (“EPS”) was $0.12 and adjusted diluted EPS was $0.35
• Leverage (Net Debt to Adjusted EBITDA) was 0.9x at February 28, 2023
• Ongoing incremental adjusted EBITDA benefit from ASCEND transformation program higher than initially projected at launch of program
• Raising full year fiscal 2023 guidance

^*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 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, 2023.

“Thanks to solid execution by our global team, we delivered strong and encouraging performance in the second quarter. While the second quarter is typically our seasonally weakest quarter, we saw year-over-year core growth in three out of four regions and we achieved record gross profit margins and adjusted EBITDA margins since the launch of Enerpac Tool Group in 2019. We continued to execute our growth strategies and made accelerated progress on our ASCEND transformation program,” said Paul Sternlieb, Enerpac Tool Group’s President & CEO.

Mr. Sternlieb continued, “Having now reached the one-year anniversary since the launch of our ASCEND transformation program, we are extremely pleased with the continued progress we have made on the accelerated execution of several ASCEND initiatives, and as a result we have increased the expected annual adjusted EBITDA benefit of the program from the original goal of $40-$50 million to a new goal of $50-$60 million as we exit fiscal 2024. We are driving positive, meaningful, and permanent change across our organization, making us more efficient, more productive, and easier to do business with. We are also undertaking key growth investments in areas such as our expansion in targeted vertical markets, our digital transformation and digital marketing program, our customer-driven innovation, and our expansion in Asia Pacific. While the global macroeconomic environment remains uncertain, we believe the improvements we are making through ASCEND and the execution of our differentiated growth strategy have us well positioned to deliver enhanced shareholder value.”

• Consolidated net sales for the second quarter of fiscal 2023 were $142.0 million compared to $136.6 million in the prior year second quarter. Core sales improved 6% year over year, with product sales up 9% and service revenues down 4%, as the Company implemented a more selective process for quoting service projects that is focused on more differentiated solutions. The impact from foreign currency exchange rates reduced net sales by 2% in the quarter compared to the prior year.
• Fiscal 2023 second quarter net income and diluted earnings per share were $7.2 million and $0.12, respectively, compared to net income and diluted EPS of $2.1 million and $0.03, respectively, in the second quarter of fiscal 2022. Fiscal 2023 second quarter net income included:
  • Restructuring charges of $3.0 million ($2.8 million, or $0.05 per share, after tax) attributable to ASCEND initiatives;
  • ASCEND transformation program charges (“ASCEND charges”) of $11.4 million ($10.0 million, or $0.17 per share, after tax) including third-party fees for program implementation support;
  • Leadership transition charges of $0.2 million ($0.2 million, or $0.00 per share, after tax);
  • M&A charges of $0.2 million ($0.2 million, or $0.00 per share, after tax); and
  • Tax expense of $0.1 million ($0.00 per share) related to equity compensation deferred tax adjustments and debt issuance costs.
• 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 changes to flatten and simplify the organizational structure, impairment and 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, 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.
• Excluding the items detailed above, adjusted diluted EPS was $0.35 for the second quarter of fiscal 2023 compared to $0.14 in the comparable prior year period.
• Consolidated net sales for the six months ended February 28, 2023 were $281.3 million, compared to $267.5 million in the comparable prior year period. Core sales increased 9% year over year, while the impact of foreign currency decreased net sales by 4%.
• Fiscal 2023’s first half net income and diluted EPS were $13.6 million and $0.24, respectively, compared to net income and diluted EPS of $5.3 million and $0.09, respectively in the comparable prior year period.

• Second quarter fiscal 2023 net sales were $130.9 million, 4% higher than the prior fiscal year’s second quarter net sales. Core sales increased 7% year over year.
• Operating profit margin and adjusted operating profit margin increased year over year to 23.3% and 26.6%, respectively, primarily due to ASCEND initiatives, pricing actions, savings from cost management and restructuring initiatives implemented in prior periods, despite increased material costs. The prior year second quarter also included a $3.1 million increase in receivable reserves that did not repeat in the current year quarter.

Corporate Expenses from Continuing Operations

• Corporate expenses were $17.6 million and $8.4 million for the second quarter of fiscal 2023 and fiscal 2022, respectively.
• Adjusted corporate expenses⁽²⁾ of $7.3 million for the second quarter of fiscal 2023 were $3.0 million higher than the comparable adjusted prior year period expense of $4.3 million, primarily due to increased salary and benefits, incentive compensation, and a prior year benefit received related to a legal settlement slightly offset by restructuring savings.

Net debt at February 28, 2023 was approximately $85 million (total debt of $209 million less $125 million of cash), which increased approximately $12 million from November 30, 2022. Net Debt to Adjusted EBITDA from continuing operations was 0.9x at February 28, 2023.

Outlook

Mr. Sternlieb concluded, “Taking into consideration our solid year-to-date performance, the strengthening of the Euro and British Pound and resulting current foreign exchange rates, the success of our ASCEND transformation program which is well ahead of plan, and our view on the remainder of the fiscal year, we now expect full-year net sales of $580 to $600 million and an adjusted EBITDA range of $118 to $128 million, including an ASCEND EBITDA benefit of $32 to $38 million. Our original guidance included $15 million of EBITDA from initiatives that have now matured through our ASCEND pipeline, and will be attributable to ASCEND, but that are not incremental to our guidance. Our guidance is based on current foreign exchange rates and assumes that there is not a broad-based recession.”

Conference Call Information

An investor conference call is scheduled for 7:30 am CT on March 22, 2023. 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. In addition to statements with respect to guidance, the terms “may,” “should,” “could,” “anticipate,” “believe,” “estimate,” “expect,” “objective,” “plan,” “project” and similar expressions are intended to identify forward-looking statements. Such forward-looking statements are subject to inherent risks and uncertainties that may cause actual results or events to differ materially from those contemplated by such forward-looking statements. In addition to the assumptions and other factors referred to specifically in connection with such statements, risks and uncertainties that may cause actual results or events to differ materially from those contemplated by such forward-looking statements include, without limitation, general economic uncertainty, market conditions in the industrial, oil & gas, energy, power generation, infrastructure, commercial construction, truck and automotive industries, the impact of geopolitical activity, including the invasion of Ukraine by Russia and international sanctions imposed in response thereto, any further economic impact of the COVID-19 pandemic, the ability of the Company to achieve its plans or objectives related to its growth strategy, market acceptance of existing and new products, market acceptance of price increases, successful integration of acquisitions, the impact of dispositions and 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 or program investment, operating margin risk due to competitive pricing and operating efficiencies, supply chain risk, material, labor, or overhead cost increases, tax law changes, foreign currency risk, interest rate risk, commodity risk, tariffs, litigation matters, impairment of goodwill or other intangible assets, the Company’s ability to access capital markets and other risks and uncertainties that may be referred to or noted in the Company’s reports filed with the Securities and Exchange Commission from time to time, including those described in the Company’s Form 10-K for the fiscal year ended August 31, 2022 and most recent report on Form 10-Q. 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 and adjusted EBITDA, free cash flow and net debt. This press release includes reconciliations of non-GAAP measures to the most comparable GAAP measure, including in the tables attached to this press release. 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, services, technology and solutions provider serving a broad and diverse set of customers in more than 100 countries. The Company makes complex, often hazardous jobs possible safely and efficiently. Enerpac Tool Group’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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