Enerpac Tool Group Corp. Q3 FY2026 earnings call

- Acquisitions and Growth Strategy • InterPAC signed a definitive agreement to acquire Specialized Fabrication Equipment Group (SFE Group), expected to close in Q1 Fiscal 2027, subject to regulatory approvals. • SFE Group is a leading global provider of specialized fabrication and industrial tool solutions, expanding InterPAC's addressable market by approximately $1 billion, from $4.5 billion to $5.5 billion total. • SFE Group generated $170 million in trailing 12-month sales (through March 31, 2026) and $44 million in adjusted EBITDA, with a purchase price of $472 million (10.6x trailing adjusted EBITDA). The transaction will be funded via existing revolving credit facility and a $225 million accordion feature activation. • Post-closing net debt leverage will reach ~2.8x adjusted EBITDA, with a target reduction to ~2.2x within 12 months of closing (within the 1.5-2.5x target range). The acquisition is expected to be accretive to adjusted EPS in Fiscal 2027, with $4-$6 million in adjusted EBITDA synergies expected by year three. • SFE's product portfolio complements InterPAC's, adding exposure to high-growth verticals including defense, power generation, semiconductors, and data centers, and brings an experienced existing management team with a track record of acquisitions and integrations.

- Operational Performance Highlights • InterPAC delivered on its prior plan for mid-single-digit product business growth, with sequential improvement in service operations, partially offset by a larger-than-expected headwind from the protracted Middle East conflict. • The power generation vertical, specifically the Heavy Lifting Technology (HLT) business focused on data center and infrastructure build-out, was a standout source of strength in the Americas, with growing backlog driven by targeted marketing campaigns. • InterPAC signed a new ~$5 million contract with a major European military contractor for specialized lifting systems, with most shipments expected in Fiscal 2027. • 8 new products have been launched in Fiscal 2026 to date, on track to hit 10 new products for the full year (double the 2025 pace), including the LU Series lightweight torque wrench pump and the integrated Dual Machine Skate Set for moving prefabricated data center modules. • InterPAC recognized a $6 million net benefit from an expected IEVA tariff refund in Q3. Excluding this benefit, gross margins were impacted by product mix (higher growth of lower-margin HLT business) and ongoing dilution from the service business. Adjusted SG&A as a percentage of revenue increased 90 basis points due to continued growth investments.

InterPAC Tool Group reports two core operating segments for Q3 Fiscal 2026: 1) Industrial Tools & Services (IT&S): Organic product sales increased 5% year-over-year, while the IT&S services business declined 8% year-over-year. Sequentially, IT&S services revenue improved 17% quarter-over-quarter with better profitability, following restructuring actions in the EMEA region. Geographically, IT&S revenue in the Americas grew 6% year-over-year, with product revenue up 10% in the region. Asia Pacific IT&S revenue was flat year-over-year, and EMEA IT&S revenue was also flat year-over-year, as product growth offset service revenue declines. 2) Cortland (Other segment): Delivered 25% year-over-year organic growth, driven by strong new customer and project acquisition.

- InterPAC revised its full-year Fiscal 2026 organic growth guidance down to 1% to 2%, from prior guidance, driven by delayed service revenue in the Middle East due to the ongoing conflict and mix impacts from faster HLT growth. - Adjusted EBITDA guidance for full-year Fiscal 2026 is set at $151 to $156 million, and adjusted EPS guidance is $1.84 to $1.89, downward revisions reflecting the higher-than-expected impact of the Middle East conflict on high-fixed-cost service margins. - Free cash flow guidance for Fiscal 2026 remains unchanged, reflecting continued strong year-to-date cash generation. - Management expects Q4 Fiscal 2026 operating conditions to be similar to Q3, with no tariff recovery benefit to support margins in Q4. - Long-term, management expects InterPAC to continue delivering mid-single-digit product business growth, with ongoing improvements in service business growth and margins. After the Middle East conflict resolves, management sees potential opportunities to support regional rebuilding efforts via both product and service offerings.

- The protracted conflict in the Middle East has created a larger-than-expected headwind to Q3 results, with a $3 million delayed service project and additional customer order delays and shipment disruptions in the region. Roughly 10% of InterPAC's total business (~$60 million annual revenue) is generated in the Middle East. - Management expects similar headwinds from the conflict to impact Q4 Fiscal 2026, with continued uncertainty around the timing of a return to normal operating activity, and ongoing risk of additional project delays amid the fluid security situation. - Inflation in the Asia Pacific region has driven end customers to delay purchases to reduce costs, creating near-term demand headwinds. - Integration risk for the SFE Group acquisition, including the need to invest in new systems, controls, and reporting capabilities to transition SFE to InterPAC's public company operating model, with minimal cost synergies expected in the near term.

Q: What core strengths does InterPAC see in SFE Group, what has SFE's historical organic growth been, and what revenue synergies are expected from the deal? / A: SFE Group matches InterPAC's positioning of premium products with strong margins, and has delivered high-single-digit or better organic growth in recent years. The acquisition expands InterPAC's addressable market by $1 billion and adds an experienced, talented management team that will remain with the business post-close. InterPAC can leverage its international distribution and national account relationships to accelerate SFE's global growth, while SFE provides InterPAC access to new underpenetrated channels. Limited cost synergies are expected near term, but long-term operational and sourcing synergies are projected. The deal was proprietary, not a competitive auction process, and completed at an attractive valuation below InterPAC's current trading multiple.

Q: What is the rationale for the full-year guidance revision, will SFE acquisition transaction costs be included in current guidance, and what is InterPAC's niche in the fast-growing data center end market? / A: The guidance cut stems from continued Middle East conflict-driven headwinds to service revenue (which have an outsized margin impact due to the business's high fixed cost structure) and ongoing mix dilution from faster growth of lower-margin HLT. Q4 is expected to perform similarly to Q3, with no $6 million tariff benefit to support margins. SFE transaction costs will be excluded from adjusted results and not incorporated into the current full-year guidance. InterPAC's data center opportunity comes from serving manufacturers of prefabricated data center modules and related equipment, with HLT solutions that enable precise movement of large high-value modules. The newly launched integrated Dual Machine Skate Set delivers early technology synergies from the prior DTA acquisition and strengthens InterPAC's end-to-end heavy lifting portfolio. SFE expands InterPAC's data center exposure via its pipe processing tools that are critical for data center cooling infrastructure.

Q: What is SFE Group's market position, exposure to key end markets, and does it have a track record of gaining market share? / A: SFE operates in a fragmented market and holds top 2 or 3 market share positions across its core categories, especially in the U.S. where 70% of its revenue is generated. It has a track record of gaining share in recent years, driven by strong commercial execution and consistent innovation. SFE has greater exposure to high-growth end markets (power generation, defense, semiconductors, data centers) than InterPAC's existing portfolio: its core tools serve pipe processing needs, which are critical for cooling infrastructure in data centers and semiconductors, and it has exposure to both fossil fuel and nuclear/renewable power generation, matching InterPAC's existing end market strengths. SFE's management team also brings a pipeline of future tuck-in acquisition opportunities, which adds to InterPAC's long-term corporate development pipeline.

Q: After the SFE acquisition, will InterPAC maintain appetite for additional M&A, what are the key ongoing risks from the Middle East conflict, and how will you integrate SFE's distribution network? / A: SFE has a similar cash generation profile to InterPAC, with low CapEx (1-2% of revenue), so management is confident in hitting target leverage within 12 months of closing. While deleveraging is a near-term focus, InterPAC retains capital flexibility for tuck-in acquisitions and share repurchases. The Middle East represents roughly 10% of InterPAC's annual revenue, with large ongoing project delays amid the fluid conflict; management views current headwinds as temporary, with eventual upside from post-conflict reconstruction. SFE has an extensive distribution network with partial overlap to InterPAC's network: there are complementary channel strengths, including SFE's strong position in the welding channel that InterPAC has not traditionally participated in, so management will look to leverage combined scale to drive cross-growth rather than aggressive full consolidation.