Enerpac Tool(EPAC) - 2023 Q1 - Quarterly Report

Forward-Looking Statements and Cautionary Factors Forward-Looking Statements and Cautionary Factors This section outlines potential risks and uncertainties that could cause actual results to differ materially from forward-looking statements, including supply chain issues, geopolitical instability, inflation, interest rate hikes, and the ability to execute on the ASCEND transformation program - The company identifies several significant risk factors that could impact future performance, including[6][7] - Supply Chain & Logistics: Shortages of components, increased costs, and freight capacity challenges could delay order fulfillment[6] - Economic & Geopolitical Risks: Deterioration in the domestic or international economy, geopolitical activity (including the invasion of Ukraine), global tariffs, and a potential global recession are noted as significant risks[6][7] - Strategic Execution: The ability to successfully execute on restructuring actions and the ASCEND transformation program to achieve anticipated profit improvements is a key uncertainty[6] - Financial Risks: The impact of rapidly rising interest rates and the ability to comply with debt covenants are highlighted as financial risks[7] Part I—Financial Information Item 1—Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for the three months ended November 30, 2022, including statements of earnings, comprehensive income, balance sheets, and cash flows, with detailed notes on accounting policies Financial Statements For the three months ended November 30, 2022, the company reported net sales of $139.4 million, a 6.5% increase year-over-year, with net earnings from continuing operations more than doubling to $6.4 million and diluted EPS of $0.11, alongside improved operating cash flow Condensed Consolidated Statements of Earnings (Unaudited, in thousands) | Metric | Three Months Ended Nov 30, 2022 | Three Months Ended Nov 30, 2021 | | :--- | :--- | :--- | | Net Sales | $139,382 | $130,903 | | Gross Profit | $67,906 | $59,626 | | Operating Profit | $12,309 | $6,407 | | Net Earnings from Continuing Operations | $6,409 | $3,185 | | Net Earnings | $7,453 | $2,788 | | Diluted EPS from Continuing Operations | $0.11 | $0.05 | Condensed Consolidated Balance Sheets (Unaudited, in thousands) | Metric | November 30, 2022 | August 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $129,243 | $120,699 | | Total current assets | $352,673 | $342,380 | | Total Assets | $774,401 | $757,312 | | Total current liabilities | $154,146 | $153,188 | | Long-term debt, net | $200,359 | $200,000 | | Total Liabilities | $440,078 | $438,701 | | Total Shareholders' Equity | $334,323 | $318,611 | Condensed Consolidated Statements of Cash Flows (Unaudited, in thousands) | Metric | Three Months Ended Nov 30, 2022 | Three Months Ended Nov 30, 2021 | | :--- | :--- | :--- | | Cash provided by (used in) operating activities | $17,533 | ($4,726) | | Cash used in investing activities | ($2,535) | ($3,160) | | Cash used in financing activities | ($5,688) | ($3,717) | | Net increase (decrease) in cash | $8,544 | ($13,819) | Notes to Financial Statements The notes detail accounting policies, the ASCEND transformation program aiming for $40-$50 million in annual operating profit, and a new $600 million senior credit facility, with the IT&S segment showing increased sales - The company has one reportable segment, the Industrial Tools & Services Segment (IT&S), and an Other operating segment[25] - The ASCEND transformation program was launched in March 2022 with the goal of delivering an incremental $40 to $50 million of annual operating profit once fully implemented by the end of fiscal 2024. The company anticipates investing approximately $60 to $65 million over the life of the program[35] - On September 9, 2022, the company refinanced its debt with a new $600 million senior credit facility, comprising a $400 million revolving line of credit and a $200 million term loan, maturing in September 2027[46] Segment Net Sales (in thousands) | Segment | Three Months Ended Nov 30, 2022 | Three Months Ended Nov 30, 2021 | | :--- | :--- | :--- | | IT&S Segment | $127,297 | $121,431 | | Other Segment | $12,085 | $9,472 | | Total | $139,382 | $130,903 | Segment Operating Profit (in thousands) | Segment | Three Months Ended Nov 30, 2022 | Three Months Ended Nov 30, 2021 | | :--- | :--- | :--- | | IT&S Segment | $26,640 | $18,092 | | Other Segment | $1,424 | ($1,238) | | General Corporate | ($15,755) | ($10,447) | | Total | $12,309 | $6,407 | Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial results for the first quarter of fiscal 2023, highlighting a 6% increase in consolidated net sales to $139 million, a significant rise in operating profit to $12 million, improved cash flow from operations, and a refinanced senior credit facility Consolidated Results of Operations (in millions) | Metric | Q1 FY2023 | Q1 FY2022 | | :--- | :--- | :--- | | Net Sales | $139 | $131 | | Gross Profit | $68 | $60 | | Operating Profit | $12 | $6 | | Net Earnings from Continuing Operations | $6 | $3 | | Diluted EPS from Continuing Operations | $0.11 | $0.05 | - Consolidated net sales increased by 6% year-over-year. Core Sales, which exclude a 6% unfavorable impact from foreign currency, increased by 13%. This growth was driven by pricing actions and volume increases[71] - Operating profit increased by $6 million compared to the prior year. This was achieved despite a $4 million increase in SG&A, which included $9 million in charges for the ASCEND transformation program, offset by lower restructuring and leadership transition costs[74] - The IT&S segment's net sales grew by 5% to $127 million, with core sales up 11%. The segment's operating profit margin improved to 20.9% from 14.9% in the prior-year quarter, as pricing actions and sales mix offset supply chain cost increases[75] - Net cash provided by operating activities was $18 million, a $23 million improvement from the prior year, primarily due to higher earnings and stronger accounts receivable collections[81] Item 3—Quantitative and Qualitative Disclosures about Market Risk The company faces market risks from interest rate changes, foreign currency fluctuations, and commodity costs, with primary exposure to variable rate debt and global operations in Australia, the Netherlands, and the UK, alongside material price volatility - Interest Rate Risk: A 10% increase in the average cost of variable rate debt would have increased financing costs by $0.2 million for the quarter[88] - Foreign Currency Risk: A hypothetical 10% decrease in all foreign exchange rates against the U.S. dollar would have lowered quarterly sales by $6 million and operating profit by less than $0.1 million. The same change would result in a $35 million reduction to equity[88] - Commodity Cost Risk: The company sources materials like steel and plastic resin, which are subject to price fluctuations. It strives to pass these cost increases on to customers to protect profit margins[88] Item 4—Controls and Procedures Senior management concluded that the company's disclosure controls and procedures were effective as of November 30, 2022, with no material changes in internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[91] - There were no changes in internal control over financial reporting during the quarter ended November 30, 2022, that have materially affected, or are reasonably likely to materially affect, internal controls[92] Part II—Other Information Item 2—Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase program, authorized in March 2022 for up to 10,000,000 shares, with no repurchases made during the three months ended November 30, 2022 - In March 2022, the Board approved a new share repurchase program authorizing the repurchase of 10,000,000 shares of common stock[94] - The company did not repurchase any shares in the three months ended November 30, 2022[94] - As of November 30, 2022, the maximum number of shares that may still be purchased under the program is 6,240,265[94] Item 6—Exhibits This section lists the exhibits filed with the Form 10-Q, including the Credit Agreement, CEO and CFO certifications, and financial data in Inline XBRL format - Key exhibits filed include[95] - Exhibit 10.1: Credit Agreement dated September 9, 2022[95] - Exhibits 31.1, 31.2, 32.1, 32.2: Certifications of the CEO and CFO[95] - Exhibit 101: Financial statements formatted in Inline XBRL[95]