Enerpac Tool Group Corp. Q3 FY2025 earnings call

• Paul mentioned satisfaction with quarter performance, cautious posture entering Q4 due to economic/geopolitical uncertainty. - Darren detailed revenue growth, organic growth, segment performances, gross profit margin decline, adjusted SG&A improvement, restructuring charge, balance sheet strength, cash flow, free cash flow, share repurchases, and tariff impact management. - Paul discussed innovation strategy, new headquarters, and DTA acquisition update, including DTA's order strength and cross-selling progress. - Emphasis on investing in automated manufacturing and innovation lab with new equipment for faster product development.

Enerpac's revenue increased 6% to $159 million in the third quarter of 2025. On an organic basis, adjusting for foreign exchange and the acquisition of DTA, growth was 2%. The IT&S business had 1.5% organic year-over-year growth, with product sales up 1% and services up 3%. The Cortland Biomedical business in the Other segment posted 19% growth. Geographically, the Americas had high single-digit organic growth driven by aerospace, infrastructure, and nuclear service; APAC had mid-single-digit growth with strength in heavy lifting technology for HLC and rail projects; EMEA had a high single-digit decline organically due to HLT business softness.

• Full year fiscal 2025 net sales guidance: $610 million to $625 million (3% to 6% growth). - Adjusted EBITDA guidance: $150 million to $160 million, anticipating delivery towards lower half. - Full year free cash flow guidance: $85 million to $95 million. - Q3 repurchased ~330,000 shares totaling $14 million. - Maintained free cash flow guidance for full year. - Ample capacity for M&A, internal investments, and share repurchases.

• U.S. tariff policy impact and associated uncertainty, with estimated annualized tariff impact of $18 million. - Economic and geopolitical uncertainty creating a cautious environment for customers' capital investment decisions.

Q: Could you add some more color to what you're 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?

A: Paul said it's a dynamic environment, customers vary, no meaningful project cancellations seen, some cautious on large capital investments but underlying needs exist. Pricing actions taken to offset tariff impacts.

Q: Did you see any revenue being pulled forward at all in Q3 in anticipation of tariffs? And what are your thoughts on inventory in the channel today?

A: Paul said no extremely meaningful revenue pull forward seen, some buy-in but nothing hugely significant.

Q: Could you provide any more additional detail regarding the restructuring actions during the quarter? And what is the anticipated cost savings?

A: Darren said restructuring was due to global uncertainty, 3/4 was people-related severance, 1/4 noncash lease impairment, automation and process standardization to improve efficiency.

Q: Our next question on pricing actions, were they implemented in the quarter? And then do you see the positive impact or those pricing actions going into effect in the quarter?

A: Darren said took one in March and one in May, some impact in Q3, real impact in Q4.

Q: On the North American performance, up high single digits. I might have missed it a little bit. I think you called out aerospace and one other segment kind of helped drive that actions.

A: Paul said aerospace and other sectors helped, Enerpac has diverse end markets.

Q: Your thoughts on your wind business. It seems that the -- a lot of the renewable energy credits are maybe on the chopping block. Just any feedback you're getting from your wind customers as far as the outlook for that market?

A: Paul said still positive on wind market, EMEA had benefit from ongoing wind projects, U.S. market has opportunities with favorable changes, focus on core vertical markets like infrastructure and rail.

Q: 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?

A: Paul said no change, remain focused on M&A, active in M&A funnel, disciplined with strategic and financial hurdle rates.

Q: 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?

A: Darren said goal is to remain price/cost neutral, flexing with market through surcharges.

Q: On DTA, it looks like DTA sales were better than expected in the quarter, but still trending below the EUR 20 million guidance. Has your expectation for the EUR 20 million guidance changed?

A: Paul said DTA integration going well, revenue shy of original guidance but orders strong, tracking to more than EUR 20 million.

Q: How do tariffs impact U.S. tariffs on Europe impact DTA's cross-selling ability into the U.S.?

A: Paul said DTA products made in Spain subject to tariffs, but no diminishing demand from U.S. customers.

Q: 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.

A: Paul said historically mix of in-house and outsourced, innovation lab investment reduces time to prototype, expects time improvement in bringing new products to market, cost advantages and impact on innovation rate.

Q: Curious as to how Q3 played out compared to your expectations, given focus on commercializing 2024 launches in first half and new product innovation in second half.

A: Paul said Q3 had focus on commercializing 2024 launches with good progress, also added new capabilities and launches, like rail solution pinpuller.