00:05 Ladies and gentlemen, thank you for standing by. Welcome to Enerpac Tool Group's Fourth Quarter Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterward, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded today, September twenty nine, twenty twenty one. 00:36 It is now my pleasure to turn the conference over to Bobbi Belstner, Director of Investor Relations and Strategy. Please go ahead, Ms. Belstner.

00:44 Thank you, operator. Good morning, and thank you for joining us for Enerpac Tool Group's fourth quarter fiscal twenty twenty one earnings conference call. On the call today to present the company's results are Randy Baker, President and Chief Executive Officer; Rick Dillon, Chief Financial Officer; and Jeff Schmaling, Chief Operating Officer. Also with us are Barb Bolens, Chief Strategy Officer; Fab Rasetti, General Counsel; and Bryan Johnson, Chief Accounting Officer. 01:14 Our earnings release and slide presentation for today's call are available on our website at enerpactoolgroup.com in the Investors section. We are also recording this call and will archive it on our website. 01:28 During today's call, we will reference non-GAAP measures such as adjusted profit margins and adjusted earnings. You can find a reconciliation of non-GAAP to GAAP measures in the schedules to this morning's release. We also would like to remind you that we will be making statements in today's call and presentation that are not historical facts and are considered forward-looking statements. We are making those statements pursuant to the Safe Harbor provisions of federal securities law. Please see our SEC filings for the risks and other factors that may cause actual results to differ materially from forecasts, anticipated results or other forward-looking statements. 02:07 Consistent with how we've conducted prior calls, we ask that you follow our one question, one follow-up practice in order to keep today's call to an hour and also allow us to address questions from as many participants as possible. Thank you in advance for your cooperation. 02:22 Now, I will turn the call over to Randy.

02:27 Good morning, everybody, and thanks, Bobbi. We're going to start today on slide three. But before we go through the details on the quarter, I have several key topics to cover. First, today, I announced my retirement from Enerpac Tool Group after five years as CEO. It's been a real honor being part of the Enerpac team, and I'm very proud of the transformation we've accomplished during my tenure. I'm also very happy that Paul Sternlieb will be succeeding me as CEO as he brings great operational experience and a track record of growth. I'm going to be available to help Paul through the transition through the remainder of calendar twenty twenty one to make sure we have a smooth process. 03:06 Secondly, COVID remains a serious safety concern for Enerpac globally. During the quarter, we were able to minimize potential infections and keep our employees safe, but we still have employees getting sick around the world, which remains a concern. Europe and North America have done a better job of navigating the impact while Mid East and Asia have a significant business disruption. Jeff will cover the implications later on in the call, but it's suffice to say that we're experiencing more difficult growth conditions in these regions. 03:38 Enerpac's fourth quarter sales grew significantly, but as with most companies, supply chain and logistics constraints played a role in the quarter. Our operations team did an outstanding job managing these difficulties and ensuring our customers on-time delivery was not compromised. Secondly, they focused on controlling costs and keeping our plants efficient as possible. 04:01 When compared with twenty nineteen results, margins expanded by one eighty basis points, and the company delivered incremental margins at the high end or expected range. Given the inflationary factors, we are satisfied with the results in the quarter. Additionally, we are now well positioned to actively pursue M&A growth opportunities and continue our internal investments in organic growth. As I mentioned last quarter, we have reinvigorated our M&A pipeline and I have high expectations Enerpac will make progress toward our strategic objectives. 04:37 Now, let's turn over to slide four. As we discussed last quarter, sales grew nicely, and we are now nearing our historical peak demand. It's important to note that our sales growth has been predominantly in Europe and North America, while Mid East and Asia remain at a lower level. Secondly, product sales have grown at a much faster rate than service, which aided our incremental margins in both the third and the fourth quarter. 05:06 New product orders in the quarter were up forty two percent, reflective of the significant growth in North America and Europe. Jeff will cover the details of the regional performance, but I'm very pleased with the results and the dedication of our sales and marketing teams worldwide. 05:23 Now let's move on to slide five. Fourth quarter sales were sequentially better than the third, which is not typical for the normal seasonality of Enerpac. Core sales grew by twenty eight percent in the quarter, while product orders increased by forty two percent. Our sales growth in the quarter was muted by approximately five million dollars, which was related to logistics constraints. 05:47 Incremental margins in the quarter met expectations and were at the high end of our stated range of thirty five percent to forty five percent. Cash flow continues to improve particularly when compared with the low levels generated in our prior year. For the full year, cash conversion was well over one hundred percent which reflects the efforts to control our inventory, while supporting our sales growth. 06:10 Enerpac’s net debt leverage reached a record low of zero point six times, which positions us for future strategic growth. Regionally, North America and Europe have returned to near normal operating levels benefit from -- benefiting from a lower COVID impact and strong economic conditions. 06:31 As earlier mentioned, Mid-East and Asia Pacific are struggling to return to pre-COVID level and are growing at a slower rate as compared with the rest of the world. Overall, I am pleased with the results in the quarter, particularly in light of the inflationary and logistics factors. 06:51 Now turning over to slide six. As I reflected in my tenure as CEO, I'm proud I’ve been part of the transformation from a small cap diversified industrial to a focused pure play tool company. The journey has been difficult but the Enerpac team has been able to continuously improve and create a much better performing business. 07:11 We have always been clear on our objectives to drive organic growth through a creative product development process and support our customers through commercial processes. To that end, we have made significant progress, which is illustrated in our sales growth and consistent delivery of new product contribution above our ten percent goal. 07:32 Our operations have improved significantly over the years and are now closer to achieving a true lean manufacturing objective in terms of quality, cost, delivery and safety. There are many areas I'm proud of, but most importantly, having the opportunity to work with the Enerpac team has been a very rewarding part of my carrier. 07:53 We launched the Enerpac Tool Group officially in twenty twenty. We were making great progress prior to the impact of COVID in March of that year. Organic growth was accelerating and we made our first acquisition as a new company. 08:07 Now as we begin fiscal twenty twenty two, we are able to restart our strategic objectives and focus on the future of the Enerpac Tool Group, which is why making the CEO transition now helps provide consistent leadership into the future which will be focused on both organic and M&A growth. I have no doubt that management team will deliver great results and make our company even better. 08:33 I'm going to turn the call over to Rick and Jeff now to go over the details in the quarter, and then I'll come back with the market outlook and the twenty twenty two guidance. Jeff, over to you.

08:44 Thanks, Randy. As already mentioned, we experienced continued recovery in the quarter and I'll break that down regionally to give some detail on areas of strength, in some cases, continued challenges. As always, I'll also give a brief update on our operations and I'll finish with some comments on our Cortland business. 09:02 Before I jump in though, I'd like to echo Randy’s thanks to our global team for their continued execution in support of our customers through a tough quarter and a tough year from multiple respects, including, of course, the pandemic, supply chain and logistics challenges and the overall difficulty of staying in touch with our end users. I sincerely appreciate everyone's efforts in helping us finish strong. 09:25 Moving on to slide seven. Similar to Q3 all four regions significantly up year over year in Q4, and in total, the business climbed to within about three percent of pre-COVID levels for the same period in twenty nineteen. We continue to track our product order rates using twenty nineteen as our benchmark, which was a peak demand for us. And overall, we finished slightly ahead of that pace, again, driven primarily by standard product orders. 09:53 Service in the quarter was up significantly versus prior year, but still well off twenty nineteen due to the large project work that year, the tough comparable and the continued effects of COVID. There were, however, a few bright spots of service, which I'll talk to when I get into the regional comments. 10:10 Starting with the Americas, we continue to see broad based improvement in our key verticals of industrial MRO, civil construction and power gen. Year over year total sales improved about thirty percent due entirely to product sales. Dealer confidence continues to improve and keeping with the continued return of retail demand this quarter, and we're seeing a nice build on our funnel of HLT, machining and special projects in the civil construction space. 10:38 Sell through at our large national distribution and more typical stocking orders across all distributors continued throughout Q4. Service and rental came in slightly down compared to last year as we continue to see larger turnaround work, especially in the gulf and projects get pushed to the right due primarily to COVID restrictions on job sites as well as our co-dependency on other suppliers of parts and labor at those sites. 11:05 In Latin America, the continued strength in iron and copper drove sales in mining despite continued significant challenges around COVID and political uncertainty in certain countries. 11:16 Now moving onto Europe, the region delivered another solid quarter with over thirty percent year over year core growth and about ten percent core product growth compared to fiscal nineteen. While travel restrictions are still limiting customer visits, the impact to the business was relatively small as our customers are finding ways to work around the impacts of COVID. From a vertical market perspective, power gen, infrastructure and oil and gas contributed to the strong results, and we again delivered several large orders from our heavy lifting group into infrastructure, Aero, and civil construction. 11:51 Channel performance at both general and value-add distribution was strong and inventories appear to be well balanced with the demand. Service in ESSA was a very good news story as we benefited from some large projects in the North Sea, both labor and rentals were up sharply compared to the past several years. 12:10 Moving on to the Asia Pacific region, the region delivered nearly twenty percent year over year core sales improvement despite continued challenges with the COVID related restrictions and lockdowns, again, particularly in Southeast Asia. Similarly -- similar to my comments last quarter, we are keeping a close eye on this region as it hasn't experienced the same level of recovery as the Americas and Europe with continued lockdowns and our distributors and staffs inability to travel. 12:39 Mining continues to drive sales in Australia, particularly in iron and we're looking for improvement in our oil and gas related product and service rental opportunities as we enter twenty twenty two with increases in the plant shutdowns and maintenance activities in the region. 12:56 Moving on to slide eight and the MENAC region, I'm pleased to report this region delivered nearly thirty percent year over year core growth in the quarter as well, again, despite continued COVID related shutdowns and travel restrictions. Consistent with Q3, our focus on expanding product sales into non-oil and gas verticals continues to deliver positive results, again, especially in power gen this quarter. 13:19 We saw a thirty percent year over year service growth as projects are slowly coming back online. As I mentioned earlier, we are still down versus twenty nineteen as the large service projects that drove our strong performance that year still have not come back. Our ability to move people around the region is our number one priority and we continue to navigate various restrictions country by country. Service backlog improved over the course of the quarter as we enter our seasonally busier time ahead. 13:49 Now moving into to operations, the headline was certainly the significant supply chain challenges, material cost increases and logistics constraints that continue to ramp-up throughout the fourth quarter. I'm pleased that we continue to deliver strong on time delivery performance despite these various challenges. But we do expect these factors will continue to present headwinds as we move into fiscal twenty twenty two. We're taking steps to counter risk by working with existing suppliers to provide better forecasts, placing additional advance orders and establishing additional suppliers where we can to backstop regional variation and supplier performances. 14:28 From an inventory perspective, we did end the quarter slightly higher than Q3 and this comes as a planned move to stay ahead of demand and longer than normal lead times. We've been working proactively with many of our OEMs and national accounts to secure longer than usual advanced orders and forecasts to stay ahead of these extended supplier deliveries and have gotten a lot of great participation so far from these partners. 14:54 In terms of price actions, we did execute the June action as we discussed last quarter, as well as taking some additional targeted pricing in August as we continue to see our cost move throughout the quarter. We continue to be laser focused on cost as we move through our first quarter here in twenty twenty two and our poised to take further actions as required. 15:16 Now finishing up with Cortland. The business experienced core growth of twenty eight percent year over year in the fourth quarter compared to eight percent in the third. In our industrial business, order rates held up well in the fourth quarter, lead times improved despite working through several production challenges, but we did not make as much headway working down the backlog as we hoped in the fourth quarter. We expect to see that backlog reduce in the first half of fiscal twenty twenty two as labor shortages have improved and productivity increases. 15:46 As for the medical side of the business, we saw a meaningful increase in orders in the fourth quarter compared to the third quarter, and we succeeded in moving our new textile technology platform into the production phase which was an important step in our medical expansion strategy. We expect the transfer of additional platforms in fiscal twenty twenty two as we complete ongoing development and qualification activities with several customers. 16:12 And with that, I'll turn the call over to Rick for the financials.

16:21 Sorry. Thanks, Jeff, and good morning, everyone. Before we move on, let's just continue with Cortland for a moment. Adjusted results exclude an approximately six million dollars impairment charge on our Cortland Industrial business. The charges is result of the extended impact that COVID has had on the business and our inability to realize three million dollars in annual savings from our previous footprint optimization actions. As market conditions return to normal, our team remains focused on driving commercial growth and operating efficiencies that will improve the performance of the business going forward. 16:57 So, now let's recap our fourth quarter adjusted results on slide nine. Fiscal twenty twenty one fourth quarter results of one hundred and forty five million dollars increased two percent from the third quarter and thirty one percent when compared to the fourth quarter of the prior year. This was below our expectations and directly attributable to supply chain and logistics constraints. 17:20 Tool products core sales were up approximately twenty two percent compared to prior year and two percent compared to the third quarter. Service sales of thirty million dollars were down slightly versus the third quarter, but increased fifty five percent compared to the fourth quarter of fiscal twenty twenty, which was the trough for our service business during the pandemic. 17:41 Cortland sales were up twenty eight percent compared to the prior year and nine percent sequentially. Adjusted EBITDA margin for the quarter was just under seventeen percent, up from the nine percent reported in the prior year and down fifty basis points from the third quarter. 17:58 The adjusted tax rate for the quarter was thirty six percent which is down from fifty one percent reported in the prior year, the full year adjusted effective tax rate was approximately twenty one percent and in line with our expectations. 18:13 Turning now to slide ten. As mentioned earlier, both product and service up significantly compared to the prior year. FX continued to have a favorable year over year impact on sales, providing a two million dollars tailwind in the quarter, targeted pricing actions, which we will get into in more detail here later, had roughly a one million dollars impact on the top-line as well. 18:35 Turning to adjusted EBITDA on slide eleven. Prior fourth year -- fourth quarter results reflect temporary cost savings actions in response to COVID that yielded approximately nine million dollars in savings. The return of product and service volume continues to have the impact we expected on both EBITDA margin and dollars, we saw a sixty seven percent flow through on year over year product volume improvement and fifty three percent flow through on year over year service volume. 19:07 Consistent with the third quarter, the increased volume drove favorable manufacturing variances, improved labor productivity, fixed cost absorption and service utilization. Pricing actions in the quarter offset higher freight and material costs, and this is the primary driver of the fifty basis point margin compression in comparison to the third quarter. 19:30 This leads me to an update on supply chain on slide twelve. The expanding supplier lead times and logistics bottlenecks in response to increased demand and material shortages have not improved. We continue to navigate these delays through the extreme focus on sales and operations planning, leveraging two second and third supplier relationships, qualifying alternative materials and components to address shortages and utilizing all available transportation laneways. 20:03 We estimate that these delays have resulted in approximately four million dollars to five million dollars of increased backlog as we exited the fiscal year. As supply and logistic challenges continue, we do not expect a material reduction in the amount of constrained backlog as we progress through the first half of fiscal twenty twenty two. We did experience one million dollars in headwinds from both freight and material costs during the quarter. 20:28 As we discussed on the third quarter call, we announced pricing actions to cover these costs, which neutralize the impact on our fourth quarter results. We implemented additional targeted pricing and surcharges in the quarter as inflationary pressures continue. We estimate that fiscal twenty twenty one pricing actions will result in approximately ten million dollars to thirteen million dollars of incremental top-line annual sales in fiscal twenty twenty two. As we saw this quarter, we do expect margin compression as the announced pricing will serve to offset anticipated inflationary costs, which we believe will be around through the first half of our fiscal year. 21:09 We are assuming moderation in both material and freight costs in the back half of the year and coupled with normal annual pricing actions, this should yield one percent to two percent price realization for fiscal twenty twenty two. As Jeff stated, we'll continue to monitor our incoming costs and if necessary, we will implement targeted pricing and/or surcharges in twenty twenty two. 21:37 A few more comments here before I wrap up with liquidity. As Randy noted, our fourth quarter marks the fifth consecutive quarter of sequential improvement continuing to break from normal seasonality. As we look to fiscal twenty twenty two, we do anticipate falling back into our normal quarterly pattern. Historically, our first two quarters are sequentially down from the fourth quarter, followed by accelerated growth in the third quarter, which is the seasonal peak for both tools and service and moderating into the fourth quarter. 22:09 As has been true historically, large service projects and heavy lift orders can cost some lumpiness, but generally, this is the sales pattern we expect going forward. We have included a few details on our seasonality and typical quarterly revenue spread in the appendix. 22:26 We have also included on slide fourteen some additional baseline fiscal twenty twenty two modeling assumptions on the tax rate, cash taxes, depreciation, amortization, interest expense and CapEx based on what we know today. 22:42 So wrapping up with liquidity on slide thirteen. We generated twenty seven million dollars in free cash flow during the quarter, working capital improved by eight million dollars, offset by capital expenditures of three million dollars. Receivables improved eight million dollars in the quarter and a third quarter increase of seventeen million dollars, so improved from that third quarter increase of seventeen million dollars. Inventory did go up in the quarter of approximately two million dollars reflecting a continuation of balancing supply chain constraints and increasing demand. 23:15 We generated over sixty nine million dollars of free cash flow in fiscal twenty twenty one and our free cash flow conversion for the year was well in excess of one hundred percent. We paid down twenty million dollars in debt and ended the quarter with one hundred and forty million dollars in cash on hand and net debt of thirty five million dollars. This is in comparison to a net debt of one hundred and three million dollars at the end of fiscal twenty twenty. 23:40 Our leverage is at zero point six, that's down from one point one at the end of the third quarter and one point eight in the prior year. We expect our leverage will continue to improve in fiscal twenty twenty two with year-over-year EBITDA growth and as COVID impacted quarters drop off from our trailing twelve month EBITDA. 23:59 Our strong balance sheet positions us well as we look to continue our strategy execution and disciplined capital allocation. 24:07 Randy, I will now turn it back over to you.

24:11 Thanks, Rick. We're going to turn over to the last slide on page fourteen. Now with the twenty one -- twenty twenty one behind us and the effects of COVID largely diminishing in our key market areas, including North America and Europe, we have a more optimistic view of twenty twenty two. The consistent and sequential growth experienced in third and fourth quarter and the return to a normal operating range has facilitated our twenty twenty two guidance of five ninety million dollars to six ten million dollars. We expect growth rates for Enerpac Tools to be in the low to mid-teens, while service continues to grow at a slower rate in the low single digits. 24:51 Cortland is projected to grow in the low twenty to mid-thirty percent range, driven by strong medical device sales. Our incremental margins for twenty twenty two are projected to be in the normal operating range of thirty five percent to forty five percent, excluding the impact of currency. We also expect Enerpac to returns to normal seasonal flow, where Q1 and Q2 are the weakest quarters followed by a stronger second half. 25:18 Additionally, we have considered the headwinds we are experiencing from microeconomic inflation, supply chain constraints and the continue impact of COVID in APAC and the Mid-East. Secondly, we have considered the potential for the positive effect of U.S. infrastructure bill in the latter portion of twenty twenty two. Our assumptions for fiscal twenty twenty two remain consistent with prior quarters, although we are monitoring the potential for U.S. tax code change. 25:48 As I said earlier, the opportunity to lead Enerpac has been a very gratifying portion of my career. And I would like to extend my sincere thanks to all our employees for their dedication, as well as our investors for their support. 26:02 Operator, that concludes today's prepared remarks, we can open it up for questions.

26:08 Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question come from the line of Brendan Popson with CJS Securities. Please proceed with your questions.

26:50 Hi, good morning. Just want to ask real quick on the impact on supply chain and freight and all this. If we look at your EBITDA margin, can you at all quantify how much impact you're -- like if everything was normal, where would you expect it to come in versus how many bps do you think you were losing this year because of that?

27:19 I think in -- if you just stick with the fourth quarter here, as I mentioned, despite a fifty basis point impact from more so the pricing offsetting the incremental freight costs. So we’ll be in line at that -- a little over seventeen million dollars that you saw in the third quarter. As we look forward to our twenty twenty two guide, we kind of walked you through that ten million dollars to thirteen million dollars of pricing with really back half realization coupled with other actions -- pricing actions given us that one percent to two percent of realization. 28:04 If you do the math on that, obviously, that's less than flow through of all of our pricing actions and really that margin compression combined with still growing back into our, what I will call, our twenty nineteen normal levels for both product and service are really the big drivers of us guiding still just under the twenty percent target. And we feel -- still feel confident that once we truly get back absent the headwinds from supply chain and logistics, we're back on track.

28:45 Okay. Thank you. And then just a quick follow-up. Could you dive more into the -- what went on with Cortland and the challenge with achieving the cost savings of the restructuring?

29:01 Sure. I'll start and then Jeff, maybe you can chime in. I think really the impairment is a longer term view that reflects current market conditions, reflects the drag that's still out there from a -- this business, primarily the industrial business and our ability to realize operational efficiencies and the COVID impact and a restrained volume impact and the impact that has on our long range forecast. 29:39 So, we took actions and we talked about it in twenty nineteen that allowed us to split the medical and industrial business really into two separate businesses. In doing that we talked about five million dollars of savings there, the operating inefficiencies caused by COVID, labor constraints and then also just the overall market for that business being down and the forecast not showing that business coming back as strong as we originally forecasted. Those two drivers, if you recall, we talked about getting that margin of that business showing improvement. That's a combination of volume and restructuring savings and those two factors have hampered us from that perspective. 30:28 So the timing is, an annual review, nothing specific driving that, just an annual review of long term forecast and expected profitability drove the impairment charge in this quarter.

30:44 Okay. Thank you for the color. I appreciate that. And best of luck Randy.

30:47 Thanks. Appreciate it.

30:52 Thank you. Our next question come from the line of Jeff Hammond with Keybanc Capital Markets. Please proceed with your questions.

30:59 Hey, good morning. This is David Tarantino on for Jeff. So just to follow-up on supply chain, maybe could you talk a little bit more about your ability to capitalize on the underlying demand, given it appears demand continues to recover and you have been building your inventories?

31:22 So, I think, as we think about demand, we are working -- navigating our way through these lead times and we are building inventory. And if you split that for a lot of our what we will call our high volume product, we definitely have made the bets to get that inventory in stock so that as the demand continues to grow, we are in fact able to capitalize it. So you see that product growth in our forward guide, just kind of capitalizing on demand and making sure we're well positioned from a supply chain perspective to capture all of those sales. 32:09 We do have long lead time product that in this environment, we are kind of adjusting now and making the decisions on which of those inventories we're going to build here as demand grows, but that's one we're navigating through carefully. And some of the five million dollars backlog that we talked about is for longer lead time sales and it's part of us saying we expect that as we navigate through the existing five million dollars, we do expect some overhang here as we come out of quarters in the first half of the year. But definitely positioning our sales planning to capture on the demand for our high-volume and high moving product. 33:00 Jeff, I don't know if you want to add anything.

33:02 Yes. The only thing I would add is that, in my comments I mentioned our pretty strong efforts throughout the third, actually in the fourth quarter, working with certain larger partners to get a better advanced view of their requirements. Normally, we would be talking to them about our quarter or two outlook and we're actually pushing them to talk to us more on an annual basis in terms of what the requirements are going to be. And that's really all meant to give us a chance to provision those, especially those longer lead components and be responsive to the time delivery that they continue to expect, despite the challenges we're facing. So, yes, it's a balancing act for sure.

33:51 That's great -- it's great point to add that I skipped over. We do see that in our backlog, it's not necessarily incremental sales, but having that forward view of demand is key to navigating in this environment.

34:11 Great. Thank you. That's helpful. And then, just as a follow-up, could you dig a little bit more into your expectations in fiscal twenty twenty one from an oil and gas standpoint, also how it performed in the quarter, given you had seen some pent up -- you cited some pent up demand in last quarter's earnings call?

34:35 It's really kind of a region by region answer to your question. We anticipated frankly a little stronger quarter in the Gulf, which did not materialize. In the Middle East and North Africa, sales did improve pretty much the way we saw it in the quarter. So really this is all about just getting plants back to work, getting our folks ability to travel. And so, I would say the Gulf, slightly disappointing, Middle East pretty much what we expected. And we expect both of those to continue to improve as we go into twenty twenty two.

35:21 Great. Thank you.

35:25 Thank you. Our next question come from the line of Deane Dray with RBC Capital Markets. Please proceed with your questions.

35:33 Thank you. Good morning, everyone. Just start off with the awkward question and from our perspective, this leadership change looks abrupt and unexpected. Randy, I know, you don't speak for the Board. So, I guess what I could ask is, when would the earliest that we would hear from Paul, the new CEO in terms of the operating plan, longer term strategy? I know you suggested that there wasn't going to be any change, but in this transition, when would the earliest point that we would hear from new leadership?

36:15 Well, first off, any time you have a CEO change, you try to do it in an extremely orderly manner. And as I mentioned in my commentary, one of the things that's extremely important to me is we continue through execution of our strategy is that, there is an M&A component of that. And I have always felt that if you acquire, you need to run it. You can't just decide to retire midstream as you acquire something, particularly put something in a scale. 36:49 So from my perspective, that has always weighed on my mind as I approach the Big 60 in my life, I always felt that, that was a time frame in my commitment to my family that I needed to fulfill. So that was out there. And I think our Board has done a great job of looking at opportunistically of what was available in the market, thinking about what they wanted for CEO transition, finding somebody with extremely good operational experience and also a track record of growth. And they could take what we built here and move on. 37:24 And so I think in the first quarter, you definitely will hear from Paul. It's part of the process for any CEO to come in, assess the business. Get to know the people, number one; get to know our major shareholders and then start discussing with the sell side. So I would expect you'll see things in Q1 for sure.

37:48 That's actually really helpful, thoughtful response. So I appreciate it, especially as we recognize that the company is on the threshold of pivoting to growth. And I fully appreciate that if you're making a no-go decision on a larger deal, you should be around to see it through as well. So I appreciate that as part of your answer. And just looking at Paul's background, he comes and has had experiences in a number of impressive organizations. And so that certainly looks as though there will be lots of his expertise. So we appreciate that. And I wish you all the well and the Big 6 though is not that big a deal, let me tell you.

38:33 It's just a number.

38:34 Yes, sir. If I could do a follow-up question on business at hand, I'm really interested in the fact that -- and I also appreciate that you've done this. For fiscal twenty twenty two, the second half year incorporating some boost from infrastructure spending, which will be exactly what I would expect you could do, but what are you assuming, maybe quantitatively if you could, but qualitatively what types of spending would you all get a benefit from and that what I would think kind of a shorter timeframe, so be really interested in that. Thanks.

39:15 Let me share my experience with past infrastructure spending and I go dating myself on the T21 bill for many years ago. Once that bill was signed, there is a very particular process of how money gets allocated by particular states and projects, which falls on into a design, bid letting and awarding process and that takes several quarters. And so, as we think about our fiscal twenty twenty two, certainly, if things progress with a bill, you might see something that sign above before the end of this calendar year. Should that happen then our -- certainly, our third quarter would be experiencing bidding activity, awarding activity and potentially in the fourth quarter you might see some project impact. 40:10 Now from the perspective of what's in the bill that is variable. We've seen various pieces of it that has true infrastructure in it. Enerpac always benefits from road construction, bridge repair, any major airport expansion or build out, rail certainly can be a big impact for us and tool sales, all of which are good for us. 40:39 It's just a question how quickly can the firms that are awarded these contracts assess their heavy equipment needs and then assess their maintenance needs which are -- where we come into play. So from that perspective, we took that into account, now quantifying it, no one really wants to put a circle around that yet, but certainly we are hopeful that that could create a nice tailwind for us in Q4, but putting a certain around that exact number, I wouldn't want to place that just yet.

41:13 I appreciate that color. Thank you.

41:18 Thank you. Our next question come from the line of Ann Duignan with JP Morgan. Please proceed with your questions.

42:19 Yes. So covering your first question, we have a very rigorous process that we use for developing guide. And I've had conversations with Paul on that topic. He certainly can't weigh in from a detailed company standpoint yet nor should he, but from understanding the macroeconomic factors that every company experiences, I think he understands it. He understands our run rate, our sequential improvements that we've seen. And as we established our guidance range, there was a level of comfort, not only from our Board of Directors, which is normally the process, but also from Paul. So I feel good that we've had a lot of conversations about the business. 43:09 From his background, what I really like about is, much the same as my career, I benefited from working for large corporations, really from the very start of my career. I've worked with Sandvik earlier on, then Ingersoll Rand, obviously, Komatsu and then CNH. And every one of those, I took major experiences away from not only M&A, how do you grow a business, how do you operationally run it and I saw similarities in Paul's background. 43:41 Certainly, everybody looks at Danaher as one of the best run companies in the world, and I think that's a very important part of his career that I was impressed with and his thoughtful view on how businesses should be run. Certainly, he will have a chance to speak with the investor base and talk further about his career and give you more views on how that relates to Enerpac. But I always look at -- great athletes can go from one sport to another. And I really look at Paul as that type of athlete that can go from one company into the next and take what he has learned from those experiences in major corporations and use it here at Enerpac. And so I have high expectations for him and I know the Board are very supportive of him, which is very important.

44:34 Just adding one thing. To be fair, Paul has not set or really had any opportunity to weigh in on our guide. He's still a JBT employee. As a management, we believe this is the appropriate guide and certainly walked him through it. But he has not set the guide and he's not signing off on the guide. You have to do a lot of work to be able to do that. We believe we've got him to the right answer, and we believe it's reflective of where we are and what we can do in twenty twenty two, but I don't want to say that he signed off on the guide.

45:15 Thank you for that. I appreciate the color. And then maybe my follow-up would be on the guidance and the notion that we will see normal seasonality. Again, given the lack of visibility and given the overhang of COVID and whether we get an infrastructure bill or don't, how much confidence do you really have in achieving normal seasonality? I mean, is Q1 already turning out like a normal Q1 or do we have to correct it a little bit more because we still have all these supply chain issues? I'm just trying to get a sense of how much visibility you have into normal seasonality from where we stand today. Thank you.

46:01 So one thing -- I'll start and feel free Jeff or Ricky will chime in. When we say normal seasonality we're talking about going from Q4 to Q1 last year we saw an increase. Normally, you wouldn't see that, you'd see Q1 kind of moderate down from Q4 and that's what we're saying we'll see here. 46:24 We also just based on the guide you'd expect given our Q1 last year was heavily impacted by COVID you expect to see some year over year growth and you can get there just looking at our annual guide. So, when we say normal seasonal pattern, it's more so just relative to -- each quarter relative to the other. 46:48 The other thing I wanted to make clear, we view infrastructure as a tailwind to our guide. It is not -- we don't need an infrastructure bill to get to the guidance range that we've provided here.

47:07 Okay. That's great. So normal seasonality is just more directional, we shouldn't take it as an absolute X percent buffer beyond [Multiple Speakers] 47:23 Okay. Well, Randy I wish you luck, I've known you a long time. So keep in touch.

47:28 I appreciate that, Ann. Thanks. All the best to you.

47:31 Thank you.

47:34 Thank you. [Operator Instruction] Our next question come from the line of Michael McGinn with Wells Fargo. Please proceed with your questions.

47:48 Hey. Good morning, afternoon. I'll echo the earlier comments from my peers. Randy, it's been a pleasure and best of luck.

47:55 Thank you.

47:57 Digging into the guidance, it looks like you have products outpacing services, and that makes sense given the start-stop nature of this COVID-driven economy. So, I guess my question is, if you had the visibility on the services, and that's a relatively high fixed cost manpower business, what would the incrementals look like, especially as the bulk of pricing discussions thus far have been based on products? But any commentary on wages and baking that into your service assumptions long-term given wage inflation seems a little less transitory.

48:37 Rick, do you want to cover that one or you want me to jump in?

48:43 I can and you can provide some color and Jeff as well. When we look at it from a -- and I'll kind of go back to the very start of your question. When we look at this business, the biggest variable driving margin is the labor, which is somewhat of a variable cost for us, where it creates problems for us is when you have that start-stop when mobilizing, you have labor that then is underutilized. When you look at what our expectations are for a year, it's coming into this, you see it in the guide, services kind of lagging product, and we don't get to what I'll call twenty nineteen levels where we've referenced that as kind of our normalcy. We don't get there in this guide. And in large part, due to the -- as Randy described it, those regions still being heavily impacted by COVID. And so we are starting a little bit slow with service relative to what we would consider normal activity. And we believe we're -- we've adjusted the kind of the labor accordingly. And so, the biggest impact you're going to see on our -- and we see it in our guide is that we're missing that volume, which can come with as high as 40% margin levels. And so, that's how we're looking at it. Randy, Jeff, I don't know if you want to give any more color on the regions and how we see that progressing?

50:30 No, I think you've got it Rick.

50:37 Great. And in the deck, you allude to six new product categories within NPD. So if we're in a more normalized environment, I'm curious on whether you think that momentum drives more sales or more gross margin? And maybe with the impact of having the second and third store suppliers does to R&D development heading into fiscal twenty twenty two and rationalizing older products faster to put material to use of better suited product suites?

51:08 Yes. New products bring new sales, especially as we're becoming more and more focused on a couple of select verticals that we're trying to not only understand what products are required in those applications, but also find new customers for our current products. 51:28 So, I mean, short answer, yes, we expect additional sales from our new product development activities. In terms of -- if I understood your question correctly, does the current supply chain challenges drive us to different actions around rationalizing old products or --certainly as Rick mentioned earlier, we have normally longer lead time type of products those are usually lower volume products and as those consume resources we are taking a real hard look at retiring or sun setting some of those lower volume products that are now even more troublesome in the current supply chain environment. 52:16 So, yes, it actually forces our hand a little bit and it's probably a good thing for our organization to be proud of, to retire some of those older products. But yes, the new products continue to be a core part of our strategy and we're going to continue to work hard on those this year.

52:36 Got it. And if I could sneak one more in, clearly the balance sheet is in great shape here, free cash flow generation over one hundred percent of your target. This is -- I’m asking this because this company is a company that's going through a couple of iterations as conglomerate. And thinking -- when you say the acquisition pipeline has been reshuffled or built-up again, what is the ideal acquisition candidate look like for Enerpac going forward?

53:13 Well, let me just weigh in on that and then Jeff and Rick certainly should as well. But we believe, and our Board of Directors believes that acquisitions surrounding the tool industry that support the heavy, light and vehicle repair market are the correct targets for capital allocation. There are verticals that we see as very interesting, which we've spoken to in the past in length. The verticals that I think we have growth opportunity, obviously, is infrastructure. We're very good at that. 53:48 We know the things that surround the power gen industry, both renewables and traditional are extremely important vertical and acquisition targets. On and off-highway vehicle repair is also a very strong one for us. And then lastly, and this is no ranking order, but we are also very good in the general industrial repair market, which means the repair names, any facility, factory manufacturing, any type of product, we're very well placed. And products that expand that are the ones that we're highly interested in. 54:31The reassurance that we do not believe becoming a diversified industrial company is a strategy that makes sense. What makes sense is what we took several years to create, which is a pure-play, very focused tool company with outstanding margins and a cash generation that speaks for itself, a balance sheet of lenses to make those acquisitions, but all the time keeping focus on all of the above so that what we've built here is not damaged in any way. And I know that the Board of Directors are very focused on that. So that's where you'll see activity. 55:14 Certainly, Paul, will look at it with new invigorated life, but that's the beauty of having a new CEO, you come in full of energy and looking at ways to not only enhance it, but to accelerate it in some cases. So I'm really, really hopeful that that's the case. And -- but I don't believe that it's a complete deviation from a strategy is something that an investor or the market should be concerned about.

55:45 Got it. Appreciate the time.

55:48 Thank you.

55:50 Thank you. There are no further questions at this time. I'd like to hand the call back over to management for any closing comments.

55:57 Well, once again, I want to thank all of our investors and our employees worldwide for their support over the years. This has been a very gratifying piece of my career. And I look back at the last five point five years with a lot of fun memories and a lot of good friends and everybody that have had the opportunity to work with in my career, it's been a real pleasure. And I hope everybody has a very safe and happy rest of this calendar year and into twenty twenty two. So, operator, thanks very much, and that concludes today's call.

56:31 Thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Have a great day.