Yahoo Finance

Paul Sternlieb

Thanks, Darren. Let me start with some color on key end markets. On the power generation front, we've seen a pickup in nuclear business in the US, including orders related to maintenance as well as decommissioning.
For the refinery and petrochemical industry, our customers and distributors indicate a positive sentiment. Specifically, some refineries are actually just catching up with the shutdowns that were delayed during COVID. We are also seeing a steady level of new investments and assets coming online. Additionally, we see continued oil and gas investments in the Middle East.
In the Americas, we are seeing strong growth in demand from the aerospace industry, and we've expanded our focus globally to target opportunities in the EMEA and APAC regions. On the defense side, we're optimistic about the outlook as European governments look to increase their defense budgets.
For the rail market, we've seen some short-term tightening of budgets in the Americas, although we expect that a couple of upcoming rail-focused trade shows will generate special projects and orders. In the EMEA region, rail has remained solid, mainly due to activity in Italy and Spain, and we are encouraged by our rail-focused new products, some of which have already been approved by network rail in the UK and others in the process of approval.
General and industrial manufacturing, particularly in the US remains soft. And mining, specifically in Australia, remains under pressure, as we shared the past few quarters. Regarding the wind market, while there has been some negative sentiment towards the sector in recent months, Enerpac's domestic business has been strong, a trend we expect to continue. As we said, our product line serves the full life cycle of wind turbines for manufacturing and installation to operations and maintenance and eventual decommissioning, which has proven to be a real asset.
At the same time, we continue to pursue growth opportunities outside of the US and we remain bullish about the wind sector in Europe and parts of Asia. For the infrastructure vertical, while the benefits of the domestic infrastructure bill are only just starting to materialize, we are seeing very good signs of project activity, including scoping, bidding and permitting. We are also experiencing good activity in infrastructure outside of the US, particularly in Europe and the Middle East.
Additionally, we are encouraged by the German government's recently announced spending package that will include additional infrastructure investments of some EUR500 billion. We expect that will present a favorable tailwind in the coming years.
And speaking of infrastructure investments, as you can see on slide 7, Enerpac's synchronous hoist system is being used to position concrete bridge beams for a new railway bridge over the Biobio River in Central Chile, Enerpac (inaudible) technology was selected for this delicate job as it enables the bridge contractor to install asymmetric shaped beams over nearby commuter highway and rail track using only a single crane. This is yet another example of how we help our customers make complex, often hazardous jobs possible, safely and efficiently.
Let me comment on a couple of other ongoing initiatives. Last year, we announced a number of new products, the result of our revamped innovation program. We are pleased to see them ramping well with very positive reception from our customers across the globe.
Our team is also looking forward to settling into our expanded innovation lab at Enerpac's new Downtown Milwaukee headquarters, and we expect to announce a number of product line extensions and upgrades in 2025, with even more to come in 2026.
Regarding DTA, which we acquired in September 2024, we're progressing well on its integration into our Heavy Lifting Technology or HLT business. We are actively cross-selling DTA's technology through the Enerpac commercial team, as evidenced by a recent sizable order from a legacy Enerpac customer. We're also leveraging our global sales capabilities to expand DTA's reach beyond its traditional stronghold in Europe.
In fact, just last week, DTA exhibited at ProMat, one of the leading trade shows for material handling, logistics and supply chain solutions held in Chicago. At the show, DTA showcased its innovative mobile robotics solutions, strengthening relationships with industry professionals and generating a high level of potential new business opportunities. We believe Enerpac is well positioned to help DTA as we implement more efficient manufacturing processes and tools to increase throughput.
Finally, Enerpac will be exhibiting at the bauma Trade Show next month. Held in Munich, Germany, every three years, bauma is the world's leading fare for construction machinery and equipment. While we will focus on HLT and feature DTA at our booth, we will also exhibit a range of standard industrial tools. And in the past, Enerpac has benefited from orders placed at the show and the opportunity to build relationships with both distributors and end users.
As I said at the top of the call, we have maintained our guidance for fiscal 2025, but we remain cautious in light of the high level of macro uncertainty and the prospect that tariffs could bring higher inflation and lower growth.
What we are certain of is that Enerpac will be relocating to our new Downtown Milwaukee headquarters in a space designed for our specific needs and a building proudly featuring the Enerpac logo, as seen on slide 8. So next quarter, we will be speaking to you from our new location at the Enerpac Center.
With that, we'd be happy to take questions.

Question and Answer Session

Operator

Thank you. We will now begin the question and answer session. (Operator instructions)
Will Gildea, CJS Securities.

Will Gildea

Hi, good morning. Can you provide some more regarding the mix, can you provide some more color regarding the mix shift toward HLT? And where are you seeing strength from a geographic and end market perspective? And what are your expectations for the back half of the year from a mix and gross margin perspective? Thank you.

Paul Sternlieb

Yes, sure. Maybe I'll just start, and Darren can add a few comments, especially about the back half. But yes, I mean, we saw good growth, as you can see this quarter, organically, HLT in particular, had a lot of strength. I would say, particularly in the US, but also we saw some nice activity in HLT in Europe in the quarter. And HLT is good margin business.
It's just not as strong gross margins as our standard products. And so with that mix shift, along with some of the mix shift in service in the quarter, that was really what impacted gross margins. And consequently, the margins in the quarter. But Darren can talk about the second half in particular.

Darren Kozik

Yes. Typically, when you look at our business and the second and half and do north of 50% of our revenue typically in the 52% range. With that additional revenue, obviously, we get some volume leverage that comes out of that. So we expect to see higher profitability in the back half of the year. But it's not only volume, we do have our productivity initiatives at (inaudible).
So we'll continue to drive that. We should improve profitability in the second half of the year, which is why we're confident about our guidance for the year.

Will Gildea

Thank you, Super helpful. And then just one more. How is the DTA integration going relative to your expectations? Any surprises so far, either positively or anything more challenging than expected? Thank you.

Paul Sternlieb

Sure. Yes, no, I'd say the DTA integration is going well. We continue to be very excited about the strategic fit with Enerpac, particularly with our HLT business. We've been pleased with the progress we're making, pleased with the customer response we've seen in the order activity. And we're, I would say we remain bullish about the overall fit with the business as well.
So everything remains on track from that perspective. And as I mentioned on our prepared remarks, we're extremely excited to have DTA represented at our booth at the upcoming bauma exhibit next month in Munich, Germany.

Will Gildea

Thank you.

Operator

Tom Hayes, C.L. King.

Tom Hayes

Thanks. Good morning guys. I appreciate all the color. Maybe just, Paul, on the geographic breakdown. In Q1, the Americas was down mid-single digits. Now it was up high single digits in the second quarter. I think Darren called out the commercial excellence program.
I was just wondering maybe provide a little bit more detail on that in addition to kind of some of your internal initiatives, was there any maybe end markets that kind of stood out in the second quarter that kind of helped push the Americas forward?

Paul Sternlieb

Right. Yes. Thanks, Tom. Yes, I mean, we were certainly particularly pleased with the growth in the Americas as well as in Asia Pac. And even in Europe, I think as Darren remarked, I mean it's, we had really strong number of quarters of solid growth in Europe. So I mean despite the fact we saw a slight decline in the quarter, I think we're still pretty confident that we're outperforming the market and some of the challenges they're seeing in Europe.
But I think, in particular, the strength in Americas, we saw was pretty broad based in terms of end markets and verticals and customers. So that was good news for us. And then I think, as I mentioned earlier, HLT as well was particularly strong for us in Americas in the quarter. And finally, to the point that Darren referenced earlier, we do see ECX or Enerpac Commercial Excellence really, I think, starting to take hold, and we are seeing the benefits of that.
And ECX for us is really around kind of systematizing the process for sales and for managing much more actively our sales funnel. So we have much better visibility into leading indicators as opposed to just orders, also managing salespeople's activity and time and focus on where they're calling on customers, just kind of basic hygiene, I'll say, around pre-call plans and post-call visit notes and things like this that become extremely useful tools if put in place rigorously, and that's really what we've done is adopted that process and put it in place and really mandated it.
And I think it's now starting to become the culture of the business, and we're rolling that out, as we referenced in the prepared remarks in the EMEA region as well. So pleased with the progress we're making. And I think that's part of why we're seeing the organic growth performance that we saw in the quarter.

Tom Hayes

Okay. Appreciate it. That's great. Maybe just lastly, you touched on a little bit in your prepared remarks, and I know it tends to change by the hour, by the day or the tweet, just wondering if you could provide any thoughts on the talk of the tariffs, whether they're coming from Mexico, Canada and kind of how you're positioned, whether from either selling into those regions or buying products from those regions?

Paul Sternlieb

Yes. I think as we referenced on last quarter's call, we do think, I'd say we're in a relatively favorable position as it comes to potential impact of new tariffs. And obviously, as you mentioned, I mean, it is a bit of a dynamic environment for sure. So we're trying to react and be as responsive as we can to new news, of course. But on a direct basis, we mentioned last quarter, we estimate that both finished products and components imported into the US.
from China specifically is less than $20 million. Imports into the US from Canada and Mexico for us are basically negligible. So the direct impact, I think, is pretty clear to be able to calculate depending on the changing tariff environment.
I think what's more important, perhaps, though, is the indirect impact from our suppliers, which is admittedly a bit harder to measure. That includes really two aspects. One, our domestic US suppliers who may themselves source material or components from China or from Canada or Mexico, but also domestic suppliers who maybe have it increase their capacity, but they're facing higher demand from customers. And in both of those situations, we have seen some price inflation from those aspects of kind of indirect impact.
And the good news is that I think we have a fair amount of experience across our team in terms of adapting to a pretty changing tariff policy. And I think also given the global nature of our business, we have quite a bit of flexibility to secure alternative supply and to be able to ship from different facilities around the world.
And finally, in addition, I mean we certainly will have taken pricing actions as necessary to offset inflation that we can't otherwise mitigate.

Tom Hayes

I appreciate that. Maybe just lastly, I think it was you and Darren both mentioned the expectations for some new product rollouts this year. Is that pace different from the last couple of years? I know you were pretty robust in rolling out products last year. Just wondering any more color you can provide on, I don't want to steal your thunder on the new product rollouts, but you just kind of the pace of the rollout to you?

Paul Sternlieb

Yes. No, I wouldn't say different. I mean it's a bit episodic on the timing and the kind of complexity of the development efforts. But I mean we have a pretty robust innovation program, we continue to invest, we believe, appropriately in it. I'd say the first half of this fiscal year has been more focused on commercializing the new products that we did launch in fiscal '24.
And we have seen good customer reception and good commercial ramp from those. And then I think you can expect to see more innovation launches in the second half and obviously, more into as well the first half of fiscal '26. But we certainly remain committed to bringing innovative products and technology to the market for our customers, and we're pretty excited about the pipeline that we've thought.

Tom Hayes

I appreciate it. Looking forward to seeing your new offices this year. So best of luck. I appreciate the time.

Paul Sternlieb

So are we. Yes. We'll be there in a week or less. Thanks, Tom.

Operator

(Operator instructions)
Steve Silver, Argus Research.

Steve Silver

Thanks operator and good morning and congratulations in advance on the new headquarter opening next week. You guys talk, in the prepared remarks, you touched on ECX and the positive impact that it's having in the Americas. I'm curious as to whether there's any color you could provide on the implementation progress in Europe and maybe where you are in the process as compared to the Americas?

Paul Sternlieb

Sure. So we actually started the rollout and implementation of ECX in Europe, I guess, about one or two quarters ago now. And so I'd say we're pretty pleased with the progress we're making there. We've actually leveraged one of our senior leaders who was deeply involved in the rollout of ECX in the Americas region. And that person has now been charged with leading and directing that program as we roll it out in EMEA as well.
So I think because of that, we've seen really faster uptake. And obviously, we've taken the lessons learned from the rollout in the Americas as we apply it into EMEA. So overall, I think we're pleased with the progress we're making, and we expect that it will ultimately, over time, drive similar levels of impact in the European region.
Just maybe to recount what it's about, again, I mean it's really about aligning our growth focus with our strategic direction. It's around this consistent commercial approach that's driven by very focused sales activity, I would say, particularly end user-focused calls from our sales team as opposed to kind of managing the channel, if you will. We have seen a drive, what I would classify as really a winning positive culture that's driven in the case of ECX really by data, by disciplined collaboration.
And frankly, it's allowing us in the business to deliver more predictable performance because we can now track from actions to results. And so there's a lot more detail behind what ECX is in the program and how we've implemented it. But I think those are some of the key benefits that we're seeing coming to the floor.

Steve Silver

That's helpful. Thanks. And one more, if I may. On previous calls, you discussed the digital transformation of the business and progress in your e-commerce initiatives. Curious as to whether there's any update that you could give on the direct business.

Paul Sternlieb

Yes, we're actually absolutely quite pleased with the progress. So if you recall, I mean, we essentially rolled out our e-commerce program direct to end users just about three years ago now. And that has grown, I would say, substantially over that period time, admittedly off of a small base. And we remain, I would say, quite bullish about our e-commerce business.
In fact, in Q2 of this fiscal year, our e-commerce business was up 43% year-over-year. And through the first half of fiscal '25, e-commerce revenue was up 36%. More recently, we've done a lot of work to roll out e-commerce in other parts of the world, so last year in multiple markets, in Europe and more recently in Australia.
And then just in the last quarter, we actually invested behind and turned on digital advertising in both of those markets, UK and Australia, which we saw drive very significant growth in website traffic, which is a pretty good for us, a leading indicator of what we expect to see in terms of order inflow in the months to follow.
So overall, I think, quite positive, and we're pleased with the progress we're making there.

Steve Silver

Great. Thank you so much for all the color.

Paul Sternlieb

Thank you.

Operator

Will Gildea, CJS Securities.

Will Gildea

Just to follow up and thank you for your time today. With two quarters left, how should we think about the cadence of revenue margins and profitability from Q3 to Q4 embedded in your FY25 guidance?

Darren Kozik

Yes. So if you think about our second half, that is incremental revenue, and it's heavily weighted towards the second half. So typically using about 52% of revenue in the second half. So with that comes the volume leverage, and you'll see an increase in our EBITDA margins. Typically, if you look at history, when you look at our guide, we'd expect to see our strongest margins in Q4. So we will ramp as we go through the second half of the year here.

Will Gildea

Very helpful. And then just one more. Do you have any incremental updates on the M&A pipeline? And what parts of the portfolio are you most focused on enhancing? Thank you.

Paul Sternlieb

Sure. Yes, I would say we continue to spend, I would say we continue to spend a fair amount of time on M&A activity. And we have what I would classify as a pretty good kind of quantity and quality of targets in our funnel with good active conversations. So I'd say that's fairly robust. The process that we've developed is also quite robust. So I continue to be pleased with the activity there.
Obviously, nature, it's episodic. So things will come and go depending on asset availability and timing and the like. I don't know that we've really seen anything in terms of material changes and valuation expectations at this point in the market. But we remain focused on the same-store targets that we talked about previously, certainly, very high-quality businesses, strong gross margins with ability to drive accretion of those gross margins over time.
Obviously, core strategic fit with Enerpac, not necessarily kind of mirroring the exact things that we do today, but more complementary products and services to what we offer today where we can sell a broader basket of goods and services to our existing customer base.
And I think DTA would be a real prime example of that. Very simply, complementary to HLT and that we offer now at DTA horizontal movement of heavy loads, whereas before it was only vertical lifting and we have customers where, that need applications for both. So I think the funnel remains robust. We're spending a lot of time there. And obviously, if and when we can announce things, certainly, we will. But it's a key part of our overall growth strategy, and we're excited about that.
And finally, I'd say, of course, we continue to have a very healthy balance sheet that is there to be able to support anything we need to do fundamentally from a capital allocation perspective, including M&A activity.

Steve Silver

Thanks again.

Operator

And that concludes our question and answer session. I will now turn the call back over to CEO, Paul Sternlieb for closing remarks.

Paul Sternlieb

Okay. Well, thanks again for joining us this morning. We'll be presenting at the Wolf Research Smith conference in New York in early June, and we hope to see you there. Thank you again and have a good day.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.