Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the Enerpac Tool Group Corporation Q1 Fiscal 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I'd now like to turn the call over to Travis Williams, senior director of investor relations. Please go ahead.

Thank you, operator. Good morning, and thank you for joining us for Enerpac Tool Group's earnings call for 2026. On the call today to present the company's results are Paul Sternlieb, president and chief executive officer, and Darren Kozik, chief financial officer. The slides referenced on today's call are available on the Investor Relations section of the company's website, which you can download and follow along. A recording of today's call will also be made available on our website. Today's call will reference non-GAAP measures. You can find a reconciliation of GAAP to non-GAAP measures in the press release issued yesterday. Our comments also include forward-looking statements that are subject to business risks that could cause actual results to be materially different. Those risks include matters noted in our latest SEC filings. With that, I will turn the call over to Paul.

Thanks, Travis, and good morning, everyone. For our 2026 results, were essentially as expected. And there were some favorable developments and encouraging trends. In our industrial tools and services segment, or IT&S, product sales grew a healthy 4% organically, which we believe is a reflection of our ongoing ability to gain market share and outperform our broader industrial peers. We saw strong IT&S product order growth for the quarter, increasing our confidence in the outlook for the year. And as I will talk about later, we continue to invest in the business to support our growth strategy. With that, let me turn the call over to Darren who will provide more detail on our first quarter performance as well as geographic and end market trends. Darren?

Thanks, Paul. Within product revenue, particularly in the UK, turning to slide five, which shows our due to the timing. Describe as a wild card for fiscal 2026 given the underlying economic conditions declined 10%. Again, it's meaningful to separate product from services. In EMEA, product revenue grew 5%, continued strength from infrastructure and government spending and a solid performance in Southern year-over-year growth. In the second quarter and for the full fiscal year. Turning to Slide six. For 2026, gross profit margin of 50.7% was in line with our performance over the past few quarters. As expected, margins were affected by higher tariff-driven costs flowing through cost of goods sold. However, we were able to successfully offset these on a dollar basis through pricing and productivity actions. We expect the margin pressure from tariffs to ease as we enter 2026. Additionally, we enjoyed a favorable mix shift within the portfolio, which was offset by lower service margins. On the selling, general, and administrative line, we were able to hold spending essentially flat year-over-year, offsetting the inflationary impact from compensation incremental spending and innovation with tight cost controls. As a result, adjusted EBITDA was $32.4 million, representing a margin of 22.4%. First quarter adjusted earnings per share was $0.36 compared with $0.40 in the year-ago period. A higher effective tax rate negatively impacted earnings by 2¢ per share. Turning to the balance sheet shown on slide seven, Enerpac's position remains extremely strong. Net debt was $49 million at quarter-end, resulting in a net debt to adjusted EBITDA ratio of 0.3. Total liquidity, including availability under our revolver and cash on hand, was $539 million. The timing of receipts of payments in the quarter. Capital expenditures were also lower as the year-ago period included additional CapEx for our new headquarters. Finally, with our balanced capital allocation strategy, we repurchased $15 million of stock in the first quarter while we maintain ample dry powder for strategic M&A. Based on our performance in the first quarter and encouraging trends on the order front, we are maintaining our full-year fiscal 2026 guidance. As shown on Slide eight, our expectations include organic revenue growth of 1% to 4%, and adjusted EBITDA growth of 6% at the midpoint. Free cash flow of $100 million to $110 million and earnings per share of $1.85 to $2. With that, let me turn it back to Paul.

Thanks, Darren. As I mentioned at the top of the call, we enjoy the pickup in order rates in the first quarter. A trend we achieved across all three geographic regions. Demand's been particularly healthy from the infrastructure, defense, and power generation markets. At the same time, we have a strong backlog and excellent pipeline in HLT. And with the global rollout of Enerpac commercial excellence or ECX, we are benefiting from more discipline and rigor in our sales process and funnel management. In light of the strong order flow, we built additional inventory in the first quarter to ensure that we have the right products in the right locations to meet customer demand on a timely basis. As we've discussed, we are investing in our business to support Enerpac's growth strategy. As Darren mentioned, we are increasing spend on the innovation front, as we expect to deliver even more new product introductions in fiscal 2026. We are also investing in our commercial organization, expanding sales capabilities, coverage, and distribution in countries like India, Australia, and The Philippines. And we are enhancing our e-commerce capability with the implementation of a new technology platform that will improve the user experience and provide us with even more sophisticated marketing and analytical tools, all of which we expect to result in higher conversion rates. The topic of innovation and growth was front and center during our recent annual global leadership conference, which is a gathering of Enerpac's roughly top 50 leaders held each year in Milwaukee. I was truly inspired by the excitement and energy amongst the team, and the work completed to further refine our growth strategy and update our strategic growth initiatives. Speaking of growth, two of the attractive verticals we mentioned over the past few quarters are power generation and…

At this time, I would like to remind everyone, in order to ask a question, please press star followed by the number one on your telephone keypad. Your first question comes from the line of Will Gildea with CJS Securities. Please go ahead.

Good morning.

Morning, Will. Thanks for taking our questions. You've talked for a number of quarters about efforts to improve profitability of the service business and investment ways that enable you to tap higher margin opportunities. What caused the sudden sharp decline in service revenue this quarter? And were you surprised by it?

Right. So, yeah, I think we were certainly disappointed on the top line performance in the service business this quarter. After a strong fiscal 2025 year growth actually for service. You know, the issue, as I referenced in the remarks, was largely driven by a contraction in The UK market. And as part of our ongoing initiatives to capture, you know, higher margin service business, we passed on lower margin projects as we've talked about in the past. But given the consolidation and softness in the oil and gas market, you know, we've not yet successfully backfilled all that with more business, particularly in The UK given some of the market conditions there. I would say, as a reminder, our service business is a mix of rental and manpower. And overall, it is margin dilutive to Enerpac. We are actively consolidating our service footprint. We've already taken actions underway on that in Europe. While selectively continuing to make growth investments in the business. And I think it will take some time to work through the dynamics on the service side, but keep in mind that based on our reiterated guidance, we do anticipate growth and margin expansion in fiscal 2026.

Thank you. That's helpful. And then I guess just a follow-up question on that. Can you add some more color to the changes you're making in services to capture higher value business? I know on the last call, you gave the example of transitioning Algeria from an agent-based model to a direct-based model. Can you talk about the reasoning behind that? And if an initiative like that is successful, how long of a runway do you have to make that change in other regions? Thank you.

Yeah. Thanks, Will. So I we we're taking a number of initiatives. Some are commercial, like you referenced, where we're moving from an agent to a direct model. That's the direct model is more the norm for our business. The agent is more the exception. In the case of agents and moving to direct, we end up with, obviously, the direct customer relationship, which allows us to do more follow-on business, obviously, capture more margin as well. Just get a closer overall relationship with the customer. So we feel good about that model and the progress that we're making in transition to multiple there. We're also investing in our service business both in field service capabilities, but also in capital equipment and tools. We've invested in the European market in our leak sealing business, for example, and some new capital equipment. That will allow us, we believe, to capture more growth opportunities and more market share in that service line and be able to respond to customers more quickly for their needs in that kind of service business. So we're making a number of improvements like that. We're continuing, as I talked about, to optimize footprint as well. Not only from a cost standpoint, but to be able to react quickly to customer needs.

Thank you, and switching gears. Can you add some color on your pricing strategy heading into calendar year 2026? Should we be expecting an annual price increase at the beginning of the year?

Well, good question. So just as a reminder for everyone, we talked about in Q4. You know, going into the year, we saw about two points of benefit in price from the actions we took last year. You know, as we look at this year, you know, we will look to kind of remain obviously from a tariffs perspective and a price perspective. We're gonna make up for those on a dollar-for-dollar basis and hold our margin. So with that, we did you know, take a small low single-digit price increase in early December here. That will take some time to roll through the channel as we do have notice periods for that. But we constantly look at price and productivity to keep our margin targets and margin high. Thank you very much.

Thank you.

Your next question comes from the line of Ross Sparenblek with William Blair. Please go ahead.

Hey. Good morning, gentlemen.

Good morning.

Morning, Ross.

When we think about your, you know, 2026 organic guide, a little bit of price, what is contributing there from new products? And kind of the cadence of your new product launches? Everything about the rest of the year or fiscal 2026?

Yeah. Ross, we're super excited by our innovation program. We highlighted that on the last Q4 earnings call. We launched, you may recall, five new products in fiscal 2025. We're pleased with the market acceptance. They continue to ramp commercially and globally. We also have a pretty ambitious innovation program and a set number of launches that we that we're targeting for this fiscal. Which are more than we launched in last fiscal. So, we're continuing to accelerate our innovation efforts. Part of it that is driven by additional investments we've made in innovation over the last few years. In fact, if you look at our 10-K, actually, over the last three years, you'll see incremental R&D spend on a dollar basis, as a percent of revenue every single year. I think that's a good indication. Also, you know, some folks may have visited our new innovation lab here at our global headquarters in Downtown Milwaukee. That's another investment we've made to drive improvements in our innovation program and faster time to market. So, we're pretty excited by the innovation progress we've made. Excited about the commercialization of the ramp of those products, and excited about the products we're planning to launch here in fiscal 2026.

Okay. Well, when we think about kind of, you know, early days on this, you know, R&D flywheel, what is kind of the trajectory here as we think about, you know, the longer-term growth algo? I mean, are you trying to get a couple extra points of growth in new products? Are we targeting new adjacent TAMs, or is it just kinda upgrading and more defensive in the core portfolio?

Know, Ross, I think as we think about growth, I mean, you heard us reaffirm our guidance for this year kind of 1% to 4%. You know, I think as we think of the macro, you know, Europe was the wild card for us. As we look at the higher end of that range, that encompasses a little bit of price. Recovery in the market, and obviously successful launches of our new products. Beyond that, obviously, innovation and the product investments we're making as Paul referenced, really, increase in R&D over the last three years. We'll see that start to take off into the future.

Yeah. And Ross, I yeah. It's certainly part of the growth algorithm, you know, it is part of how we believe that you know, we are targeting to, perform or outperform our peer set. And we believe we've been able to do that successfully here. But I would also make the comment that, you know, obviously, we look very closely at our direct competitors and what they're doing from an innovation perspective. And we continue to firmly believe that we are outpacing not only investment spend, but just the pacing, intensity, and the level of new product launches relative to our competitive set. So we never rest on our laurels, but we're pleased with the progress we've made, particularly relative to the competitive set.

Yeah. I can appreciate that. I mean, it looks like you guys are running around 2% of sales in your R&D spend. It has been ticking up slowly. I'm just trying to get a better sense of what your visibility looks like into your R&D funnel, like, how robust of opportunities you see today. Are we still kinda early days of planting the seeds? And, you know, buying the equipment and helping the guys, you know, get to the point where they're, you know, empowered to start building out that pipeline.

Yeah. So we do have a multiyear innovation funnel. So we're always looking several years out. We're working on, you know, now updating that funnel for another year out as we execute on products and projects for this year. And just a reminder, again, you know, we launched five new products in fiscal 2025. You know, our target is to nearly double that number of new product launches here in fiscal 2026. So I think you'll see us gain additional pace and acceleration. And just, again, you know, reflective of the investments and the focus and the new processes that we've put in place. So that all is part of our overall growth algorithm at the end of the day.

Okay. So we should anticipate a more measured pace of R&D growth going forward?

Yeah. I again, I think three and a percent of sales or five percent tomorrow. Yeah. No. I mean, I think you'll see a consistent ramp over prior years. You know? But, you know, we've talked about beating the market by several 100 basis points in terms of top-line growth at the end of the day. And, you know, part of that clearly will be driven by our innovation program.

Okay. I appreciate that. And if I can just add one more here. If I go back to last year, the backlog seemed pretty immaterial, but now we're speaking to confidence kind of these, secular growing, you know, project funnels. Any visibility there on sizing where the backlog kinda stands? Versus, like, a normalized basis and what's kind of underwriting that confidence?

Yeah. I mean, I'll make a few comments Darren may in as well. I think, you know, we do you know, we're not a very heavy backlog business, as you know. We tend to be more you know, book to bill or shorter cycle, and most of our products are what we would classify as more OpEx than by our customers. Although, we do have a capital equipment business in HLT, you know, inclusive of DTA. That has more backlog. And, those backlogs tend to be sort of six to twelve-month time frames. You know, that said, I think we have seen, you know, our backlog tick up and that was driven by, you know, as we referenced on the remarks earlier, pretty strong order activity, and growth in overall orders in the quarter. And we were very pleased with that. And that order growth actually outpaced revenue growth in the quarter. So, again, giving us, you know, just more increasing confidence in our overall outlook for the year. Particularly as we as we go through the year. So I think all of that, you know, you know, just led us to maintain, you know, our current guidance for the full year.

Only thing I would add, Paul, is, you know, Ross, as we kinda look at the business, obviously, we acquired DTA last year. DTA being part of our HLT business now is really helping that. As those markets tick off, we now have more products for our customers. As we talked about in Q4, their cross-sell opportunity is huge. We're bullish on HLT for the year.

That makes sense. Alright. Well, thank you guys for the time. I'll pass it along.

Your next question comes from the line of Tom Hayes with ROTH Capital. Please go ahead.

Hey, good morning, guys. Thanks for taking my questions.

Good morning, Tom.

Hey, Tom.

Hey. Just wanted to go back to one of Will's questions on the pricing, Darren. Was that pricing act that you put in place in December across all product families and globally? And then kind of a related question on gross margin for the year. How are you thinking about the margin flowing through the balance of the three quarters? You guys have done a great job of offsetting the tariffs. Just wondering your thoughts on kind of puts and takes on the margin front for the balance of the year?

Sure, Tom. You know, I would say from the recent pricing those were in The Americas and in Europe. Now, you know, we did kinda release in this earnings a little bit more of a pie chart to give you a flavor for what our product business looks like. So just remember that low single-digit price increase is solely on product, it's not in the total portfolio. So when you factor that into the math, make sure you look at that aspect of it. I would say the second piece from a margin perspective you know, Q1 was where we thought it would be. Okay. Q2 will probably look more like Q1. And then as we get into the second half of the year, some of those higher cost tariffs will work off their way through the system, so margin will improve as we enter the second half of the year.

Okay. Great. Appreciate that. I appreciate the color that on the product sales by region, but I'm not sure if you gave it by for APAC. Is that something you guys can share?

Yeah. I think it's it's actually in the slides page five. But in APAC, we actually saw growth in this revenue in standard products. We saw we did see a sharp decline in APAC on HLT. I mean, it's a small business, and HLT tends to be lumpy. So that just varies quite a bit from quarter to quarter.

Okay. Maybe just lastly, in respect to time, an area we don't talk about a lot, but you called it out on one of the early slides. It continues strong growth in Cortland. Just kind of remind us, a little bit about the business and kind of what's driving that strong growth.

Yeah. We continue to be really pleased with the progress the team is making at Cortland. As you recall, that's effectively our other segment. And that's Cortland Biomedical. So, you know, roughly a $20 million revenue business annually. Obviously, not connected to our core tools business, but it is a very strong, very solid high growth, and high margin business. And you know, it doesn't draw undue investment or sort of management time or attention. So it runs relatively independent. But that business is very long cycle, very sticky. They design and develop and manufacture, you know, custom biomedical textile fibers for specifically for particular medical devices for giving OEM customers. So those are specked in and that those ultimate products that the customer has are obviously FDA qualified. So it's a very sticky business. Know, there is a lot of growth happening in that market. Cortland is exceptionally, we believe, well placed to support customers. We've won a number of new commercial opportunities, and you've seen that materialize in the ramp in revenue. So we continue to be quite bullish about the growth opportunities, the margin prospects, and we like the funnel of opportunities that we have there.

Appreciate the color. Thank you.

Mhmm. Thank you.

Your next question comes from the line of Steve Silver with Argus Research. Please go ahead.

Thanks, operator, and thanks for taking my questions. And I'd like to offer my best wishes to Travis as well. So in the prepared remarks, you guys mentioned the pickup in order rates and you also mentioned building inventory heading into Q2. I'm curious just whether you can quantify at all the magnitude of the inventory ramp and maybe identify any key products beyond HLT?

No, great question. I mean, we think about inventory as we head into, you know, into the quarter, I mean, it's up about 15%. Okay? So we had a really strong Q4. As you think about Q1, our product sales were at 4%. Okay? So we were very pleased with that. With all those product sales coming through, know, we had to work because our order rates were stronger than our product revenue growth rates in the quarter.

Great. And one more if I may. You guys have talked quite a bit in recent quarters about the balance sheet. Curious as to whether there's been any change in the M&A being in a very strong place to support strategic M&A. Funnel, if you will, just in terms of companies that are dealing with the macro issues that might be gravitating towards M&A at this time?

Yeah, sure, Steve. I would say I'm pretty encouraged there as well. I mean, I do think M&A activity overall in the market and here for Enerpac has picked up reasonably considerably in the last quarter or two. We are actively evaluating several opportunities so we're spending a lot of our time focused there at, you know, the pace and quantity of deal flow has definitely picked up. We're having very robust dialogue on any number of opportunities. So I feel, you know, more positive and optimistic around that, the same time, I would say, you know, we remain extremely disciplined. As always, we will certainly not overplay overpay and, you know, our focus ultimately is, of course, on creating value for Enerpac shareholders at the end of the day.

Fair enough. Thanks again, and happy holidays to the entire team.

Thank you. Thank you. Thanks very much. Happy holidays.

As a reminder, if you would like to ask a question, there are no further questions at this time. I will now turn the call back over to Paul Sternlieb for closing remarks. Please go ahead.

Okay. Well, thanks again for joining us this morning. We will be participating in the CJS new ideas for the New Year virtual conference on January 14, and the annual Roth conference in Laguna Niguel, California in late March. Thank you, and to all our team members around the world, customers, partners, and shareholders, best wishes for a wonderful holiday season, and a happy New Year.

Ladies and gentlemen, this concludes today's call. Thank you all for joining, and you may now disconnect.