Enerpac Tool(EPAC) - 2021 Q3 - Quarterly Report

Part I—Financial Information Item 1—Condensed Consolidated Financial Statements (Unaudited) Unaudited financial statements for Q3 and nine months ended May 31, 2021, detail operations, balance sheets, cash flows, and notes Condensed Consolidated Statements of Operations Q3 FY2021 net sales grew 40.5% to $143.1 million, reversing a prior-year loss to $25.3 million net earnings Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | Three Months Ended May 31, 2021 | Three Months Ended May 31, 2020 | Nine Months Ended May 31, 2021 | Nine Months Ended May 31, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $143,149 | $101,879 | $383,233 | $381,939 | | Gross profit | $66,847 | $41,947 | $176,887 | $172,728 | | Operating profit (loss) | $22,747 | $(1,998) | $37,524 | $20,938 | | Net earnings (loss) from continuing operations | $25,257 | $(4,930) | $33,663 | $5,360 | | Net earnings (loss) | $25,031 | $(4,999) | $32,811 | $(716) | | Diluted earnings (loss) per share from continuing operations | $0.42 | $(0.08) | $0.56 | $0.09 | Condensed Consolidated Balance Sheets Total assets increased to $842.7 million, long-term debt reduced to $195.0 million, and equity rose to $416.9 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | May 31, 2021 | August 31, 2020 | | :--- | :--- | :--- | | Total current assets | $371,817 | $341,132 | | Total assets | $842,702 | $824,294 | | Total current liabilities | $134,443 | $105,522 | | Long-term debt, net | $195,000 | $255,000 | | Total liabilities | $425,791 | $465,068 | | Total shareholders' equity | $416,911 | $359,226 | Condensed Consolidated Statements of Cash Flows Operating cash flow turned positive at $24.9 million, investing activities provided $15.8 million, and financing used $61.7 million Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended May 31, 2021 | Nine Months Ended May 31, 2020 | | :--- | :--- | :--- | | Cash provided by (used in) operating activities | $24,889 | $(15,703) | | Cash provided by investing activities | $15,808 | $175,935 | | Cash used in financing activities | $(61,676) | $(206,398) | | Net decrease in cash and cash equivalents | $(15,891) | $(47,548) | Notes to the Condensed Consolidated Financial Statements Notes detail accounting policies, restructuring, discontinued operations, debt management, and IT&S segment performance - Revenue is disaggregated by timing: for the nine months ended May 31, 2021, $284.8 million was recognized at a point in time and $98.4 million was recognized over time[31] - The company recorded restructuring charges of $1.5 million and $2.5 million for the three and nine months ended May 31, 2021, respectively, related to integrating businesses and driving corporate efficiencies[34][37] - On October 31, 2019, the company completed the sale of its former Engineered Components & Systems (EC&S) segment for $215.8 million. The results of EC&S are reported as discontinued operations[40] - As of May 31, 2021, the company had $195.0 million of borrowings under its revolving line of credit, with $200.5 million of available borrowing capacity. The company was in compliance with all financial covenants[48][50] - The Industrial Tools & Service (IT&S) segment is the only reportable segment, generating $358.3 million in net sales and $54.8 million in operating profit for the nine months ended May 31, 2021[62] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 FY2021 core growth from economic recovery, covering consolidated and segment performance, restructuring, and liquidity Results of Operations Q3 2021 consolidated net sales rose 41% to $143 million, driven by core sales recovery and improved gross profit margin - Q3 FY2021 consolidated net sales increased 41% YoY to $143 million, with core sales up 36%[74] - The increase in Q3 core sales was attributed to a substantial rise in sales volume as economies recovered and business activities normalized from the COVID-19 pandemic[74] - For the nine months ended May 31, 2021, consolidated net sales increased by less than 1%, with core sales decreasing 1% due to depressed volumes in the first two quarters[76] Segment Results IT&S segment net sales increased 44% to $133 million in Q3 2021, with operating profit margin expanding to 17.9% IT&S Segment Results (in millions) | Period | Net Sales | Operating Profit | Operating Profit % | | :--- | :--- | :--- | :--- | | Q3 2021 | $133 | $24 | 17.9% | | Q3 2020 | $93 | $8 | 8.2% | | Nine Months 2021 | $358 | $55 | 15.3% | | Nine Months 2020 | $352 | $54 | 15.4% | - Corporate expenses decreased by $8 million for the third quarter and $17 million for the nine-month period, primarily due to a gain on the sale of a manufacturing facility in China and savings from restructuring actions[79] Cash Flows and Liquidity Strong liquidity with $25 million operating cash flow, $60 million debt reduction, and $136 million cash on hand - Net cash provided by operating activities was $25 million for the nine months ended May 31, 2021, compared to a $16 million use of cash in the prior-year period[83] - Net cash used in financing activities was $62 million, primarily from a $60 million net principal payment on the outstanding credit facility[85] - The company believes its revolving credit line, cash on hand, and operating cash flows are adequate to meet funding requirements for the foreseeable future[86] Quantitative and Qualitative Disclosures about Market Risk The company manages market risks including interest rates, foreign currency, and commodity prices using hedging instruments - The company manages interest rate risk with a mix of variable-rate debt and a fixed-interest-rate swap that fixes the LIBOR-based index on $100 million of borrowings[93] - A hypothetical 10% decrease in all foreign exchange rates against the U.S. dollar would have lowered quarterly sales by $7 million and operating profit by $1 million for the three months ended May 31, 2021[93] - The company is subject to commodity price fluctuations for materials like steel and plastic resin, and strives to pass along price increases to customers to protect profit margins[93] Controls and Procedures Disclosure controls and procedures were effective as of May 31, 2021, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the evaluation date, May 31, 2021[95] - No changes in internal control over financial reporting occurred during the quarter ended May 31, 2021, that have materially affected or are reasonably likely to materially affect internal controls[95] Part II—Other Information Unregistered Sales of Equity Securities and Use of Proceeds No share repurchases occurred in Q3 2021, with 5,200,770 shares remaining authorized for repurchase - There were no share repurchases in the three months ended May 31, 2021[97] - As of May 31, 2021, the maximum number of shares that may yet be purchased under the company's repurchase programs is 5,200,770[97] Exhibits Exhibits include CEO and CFO certifications and financial data in Inline XBRL format - The report includes certifications from the Chief Executive Officer and Chief Financial Officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[98] - Financial statements and notes are provided in Inline XBRL format as part of Exhibit 101[98]