Ladies and gentlemen, thank you for standing by. Welcome to the Enerpac Tool Group's Third 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. As a reminder, this conference is being recorded June 29, 2020 It is now my pleasure to turn the conference over to Bobbie Belzner, Senior Director of Investor Relations and Strategy.
Thank you, Ms. Belzner. Please go ahead.
Thank you, operator. Good morning, and thank you for joining us for Enerpac Tool Group's Q3 fiscal '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 Schmeling, Chief Operating Officer. Also with us are Barb Bolan, Chief Strategy Officer Sabrizzetti, General Counsel and Brian Johnson, Chief Accounting Officer. Our earnings release and slide presentation for today's call are available on our Web During today's call, we will reference non GAAP measures such as adjusted profit margins and adjusted earnings.
You can find of non GAAP to GAAP measures in the schedule 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. 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. Now I will turn the call over to Randy.
Thanks, Bobby, and good morning, everybody. We're going to start over on Slide 3 today. Enerpac's 3rd quarter developed largely as we expected. As we discussed last quarter, we could see that all our global markets were showing signs of recovery and returning to a normal scenario. Before I go through the details on the quarter, I'd like to provide some insights into how we performed and what lies ahead for Enerpac.
First of all, I can't say enough for the commitments from all of our employees worldwide to maintain a high level of service and quality our customers demand, Especially our production and service employees which have stayed on the job throughout the pandemic and were able to work safely and to continue to deliver our products. We'll cover the regional details later on in the call, but clearly most of the world has returned to normal with a few hotspots in the Mideast and Southeast Asia. Financial results met our expectations in the quarter and further supported our long term objectives in sales growth, Margin expansion and cash. These factors have given us the confidence to reinvigorate our view of new product development as well as potential acquisitions to expand the Enerpac product line. New product launches in the quarter have delivered outstanding results and helped Capture the attention of our distributors and drive additional sales growth.
And lastly, we've spoken in length about our commitment to the environment, Social and governance objectives of Enerpac and I'm proud of the team's effort to improve in all areas. Over the coming quarters you'll see additional commitments to environmental sustainability which will help significantly lower our production and office facilities need for external power sources. Now let's flip over to Slide 4. As you can see from the chart, the 3rd quarter experienced sequential and significant sales growth Which firmly placed us back within our normal operating bandwidth. We exited the quarter with monthly sales in the normal range with EBITDA margin closing in on our 20% target.
We believe this trend will continue through the balance of the year And absent any major resurgence in the virus activity or supply chain constraints. Now let's move over to Slide 5. As I mentioned earlier, the 3rd quarter met our financial expectations. Core sales grew by 36% Comprised of 40 percent up on products and 23 percent on service. Jeff is going to cover the regions later on, but I'm very pleased with the broad expansion in sales across many Markets.
EBITDA margins expanded significantly in the quarter and we're on track to achieving our 20% sustainable level. Incremental margins reflected the strength of the Enerpac product line and exceeded our target of 35% to 45%. This was a direct result Our cost control activities which ensured our outstanding margins were reflected in earnings. As a result, EPS grew significantly in the quarter as well as free cash flow. Regionally, 2 areas were firmly back in double digit growth range led by The Americas and Europe with slower growth rates in Asia Pacific and the Middle East.
Overall, we're very pleased with the results in the quarter And the progression towards our strategic goals in growth and profitability. Enerpac is now well positioned to accelerate our growth strategy, which we outlined prior to the start of the pandemic and deliver superior shareholder returns. I'm going to turn the call over to Jeff and Rick Now to go through the details on the quarter and then I'm going to come back with some market outlooks and guidance for the remainder
of fiscal 2021. Jeff, Over to you. Thanks, Randy. It's great to be talking to you about a quarter largely full of positives and not just one about recovering from the effects of the pandemic, but We report all of our regions were in positive territory for the quarter compared to fiscal 2020. Given the impact we saw from COVID last year, I guess it isn't To remind you all, Q3 2019 was a high watermark for Enerpac, so we take this as another solid indicator we are back in growth mode.
Moving on to Slide 6 to dive into some more details on the regions. Both the Americas and Europe experienced significant year over year core Growth and momentum continue to build as we progress through the quarter. In the Americas, we saw improvement across most all of our sub Regions and end markets and our dealer confidence continues to improve both with general distribution and our national partners. The region delivered nearly 40% year over year core sales growth, which counters the mid-thirty percent decline we saw this time last year. The recovery this quarter was due entirely to improve product sales.
While service has been a bit slower to recover to date, Strengthening oil prices and delayed maintenance spending are resulting in more quoting activity, which we do believe will generate orders here in the 4th, as well as drive some pickup in our dry rental business. Dealer stocking orders continue to return to normalized levels and retail sell Again, we take as a signal of demand recovery. As I mentioned, we saw broad based improvement across most geographies in the Americas as well as most verticals, But continue to see strength, particularly from our wind, nuclear and general construction customers. In Latin America, they also delivered a solid quarter driven by the strength in iron ore mining as well as some projects in PowerGen and all this comes despite continued COVID related challenges throughout the region. Moving on to Europe, which was our best performing sales region, posted nearly a 70% year over year core growth and nearly 10% improvement against 2019.
Again, despite continued travel restrictions in many countries, our dealers covering multiple verticals like wind, infrastructure and general torque contention had a very good quarter And both general and specialty distribution showed strength. We anticipate these verticals will continue to be positive Throughout the remainder of the fiscal year due to continued government spending on infrastructure improvements as well as emphasis on clean energy. Globally, we had a nice quarter in our heavy lift business, but especially in Europe as we delivered several key projects late in the quarter. I'm pleased to see our Asia Pacific region delivered nearly 20% year over year core sales growth despite continued challenges with ongoing COVID related restrictions and lock And this was particularly in Southeast Asia. We continue to track these countries closely and work with our distribution to stay engaged with Customers as they slowly return to in person customer visits.
Mining continues to be a bright spot in the region By favorable iron ore pricing and power gen and infrastructure continue to be positive as well and we have begun to see progress Within oil and gas in Australia, in particular, with increased quoting to support some of the large maintenance projects coming back online. Overall, we are pleased with what we're seeing in China and Australia, but we'll continue to use caution as we forecast recovery in Southeast Asia until we see improvement in vaccinations and the relaxation of the travel restrictions still imposed there. Moving on to Slide 7 and turning to our MENAAC region, we're glad penetration beyond oil and gas, and we picked up some nice wins in mining and infrastructure. Another really positive note was many of our dealers are And still present significant challenges in this part of the world. Service work remained volatile, but as we exited the quarter, we're seeing signs that projects are starting to come back online despite several being pushed out of Q3.
As I've talked about for the last few quarters, the travel restrictions for our workers coming out of India, Nepal and other areas has It's been a continuing challenge, but we are leveraging the crews we do have already in country to pick up work and get started on some of the delayed Projects that still remain in our backlog. Switching from the regions to new products, I continue to be really pleased with our efforts around new product development And Q3 delivered the 7th consecutive quarter of new product vitality in excess of our 10% target As we launch 4 new product families, including some additional battery powered hand tools, some torque calibration tools and the launch of our new RC Trio cylinder line. Our operations and supply chain team again navigated a very challenging quarter as volume is returning and we deal with a tightening supply chain and logistic constraints. I'm pleased that our on time delivery remains strong throughout the quarter despite these issues, but it remains an ongoing challenge here in 4th. Utilization improved along with the returning volumes and our quality remained on target.
The tightening labor situation continues to be a headwind, What was not really a major factor in the quarter. We are however looking at our wage structure at our key facilities to try to stay ahead of any competitive pressures Reiterating my comments from last quarter, the inventory bets In June, as I talked about on the last call, which was aimed at neutralizing the known impacts from commodities and freight, which we think should see us through Q4. That being said, it's clear these headwinds are as well as increasing labor costs will be with us on into fiscal So we are preparing now for additional pricing actions early in the new fiscal year. We are also looking at actions specific to freight in the form of potential sur To finish up here with a few comments around Cortland, the business experienced core growth of 8% year over year in the 3rd quarter compared to a 21% decline in the second. As it relates to the industrial side of the business, we are encouraged by the uptick in order rates, which is Consistent with the overall increase in marine and general industrial activity.
We're entering the 4th quarter here with a pretty healthy Backlog, but many others like many others were faced with labor challenges to meet this increasing demand. As for the medical portion of the business, we exited the quarter with Volumes returning to pre COVID levels on the running business. We've also seen new crop development execution speed up as our customers' With that, I'll turn the call over to Rick for the financials, but I want Rainey's comment. My thanks to our team around the world who continue to perform exceptionally well delivering on our commitments to Thanks and Rick over to you.
Thanks, Jeff, and good morning, everyone. I'm going to start on Slide 8 with the recap of the results. Fiscal 20 21 Q3 sales increased 19% when compared to the 2nd quarter and 41% when compared to the 3rd quarter of the prior year, which was the trough of the pandemic for us. Core tool product sales were up 44%, a significant Improvement from down 10% in the 2nd quarter and service was up 23% compared to down 12% in the 2nd quarter. Cortland sales were up 8% versus down 21% in the 2nd quarter.
The adjusted EBITDA margin for the quarter was 17 And that's up from 10% reported in the 2nd quarter and 6.5% recorded in the prior year. The adjusted tax rate for the quarter was 3% and that's up from the negative 7% reported in the prior year. We still expect our full year adjusted effective tax rate to be approximately 20%. Moving on to Slide 9 and the sales waterfalls. I'll just make a few additional comments here given Jeff's discussion of regional performance.
Quarter, but it is consistent with our expectation of continued tailwinds in the back half of the year. Our 3rd quarter results marked 4th consecutive quarter of sequential improvement continuing our break from normal seasonality. We expect this to continue in the Q4. As a reminder, Q3 is historically our strongest seasonal quarter followed by Q4. So moving on to our adjusted EBITDA waterfall on Slide 10.
This time last year, we implemented several temporary cost savings actions in response to COVID that yielded $12,000,000 in savings. These actions are behind us And the return of product volume is having the impact we expected on both EBITDA margin and dollars with a 61% slow through on the year over year product volume improvement. The increased volume is also driving $3,000,000 in favorable manufacturing and variances this quarter versus a negative $1,000,000 in the We saw improved labor productivity and fixed cost absorption as our facilities scaled up to normal run rates. So let's move forward to Slide 11. As Jeff mentioned, the bets we made on purchasing inventory in anticipation While meeting customer delivery expectations in our Q3, steel and aluminum pricing has remained at all time highs Steel prices continuing to accelerate rapidly.
We are seeing supplier price increase requests in all regions and all categories, But remain in active discussions with our suppliers to minimize or mitigate these requests and the impact on our results. We have continued our approach to expanding lead times, placing the appropriate POs with suppliers to secure inventory in line with anticipated demand. Our targeted pricing actions largely effective June 1 will offset approximately $2,000,000 in material and labor cost Inflation in the 4th quarter. We believe surging demand and resulting shortages will ultimately keep costs high for the foreseeable future. As Jeff noted, we are actively planning additional targeted pricing actions early in our fiscal 2022.
Freight costs and availability also remain a challenge with costs shooting back up as we headed into our 4th quarter. Results have been fluctuating wildly in recent weeks months. If rates continue to climb, we may need to move into a surcharge scenario within the next month or so. So clearly, we're in a very dynamic environment and we are taking the necessary steps to manage through an unsettled and evolving supply chain. We are leveraging our supplier relationships, bringing on second suppliers, in some cases, and third suppliers to Navigate through capacity constraints and allegations.
We have qualified alternative materials and components to address shortages and ensure that we meet demand without sacrificing quality. As noted earlier, we have been respectful of the new and ever expanding lead times and put our sales and Operations planning into overdrive. Actions like these and the seamless coordination with our internal teams have allowed us to execute with minimal disruptions as we navigate through what is a very challenging environment. We are pleased with the outcomes and the work we've done thus far and we'll continue our efforts, seizing opportunities to drive sustainable solutions where possible. As noted earlier, Our EBITDA margin for the quarter was 17%, leveraging a leaner cost structure.
We saw the margin expand as our product sales grew during the quarter, Reporting margins in excess of 20% for the month of May. Our incremental margin for the quarter was 47%, Our structural cost moves clearly paying off and we will continuously look for structural and operating efficiencies going forward. As illustrated by our results, product sales, and that's the recovery to pre pandemic levels and continued core growth beyond that, It's the biggest driver of EBITDA margin expansion in the future. So turning now to liquidity on Slide 12. We generated just over $35,000,000 in free cash flow during the quarter.
This includes proceeds from the sale of a manufacturing facility in China As part of our efforts to right size our manufacturing footprint post sale of ECS, the facility was occupied by our Enerpac business and the divested ECS business through the transition services agreement. From a working capital perspective, $17,000,000 increase in receivables during the quarter due to timing was partially offset by increased payables. Our inventories increased only $2,000,000 We do anticipate increased levels in the 4th quarter in conjunction with the increased demand and the expanding lead times we just discussed. We ended the quarter with $136,000,000 of cash and net debt of $59,000,000 This is a comparison to a net debt of $123,000,000 in the Q3 of 2020 as we anniversary the pandemic. Our leverage is at 1.1 and that's down from 2.1 at the end of the second quarter and 1.8 in the prior year.
We remain pleased with where we sit from a cash and liquidity perspective. Our leverage will continue to improve With that, Randy, I will turn the call back to
you. Thanks, Rick. So let's flip over to Slide 13. As we think about the remainder of fiscal 2021, we've assessed the probability for continued growth as well as the potential market headwinds in the form of cost and supply chain constraints. These factors have been well publicized by many reporting companies and we believe our actions to mitigate the impact have been successful thus far.
As we discussed in our Q2, we expect Enerpac to continue sequential growth for the balance of the fiscal year, which is not typical for Enerpac. Additionally, product orders continue to grow. In June, we're up 35% versus 2020 10% versus 2019. Secondly, we believe our incremental margins remain expectations for incremental margins remain valid at between 35% 45%, further support sustained recovery through remainder of the year enabling Enerpac to exit fiscal 2021 with normalized sales levels. Now let's turn over to Slide 14.
For the remainder of fiscal 2021, we expect sales to continue to grow, which has facilitated the Our second half guide range for between $290,000,000 $295,000,000 Core sales growth The products is projected to be in the low 30% range and service is projected to grow at the high 40% level. Incremental EBITDA margins to continue to be at the high end of our stated 35% to 45% range excluding the impact of currency. And our assumptions for fiscal 2021 have not changed and are consistent with prior quarters. Now The road to recovery just hasn't been easy, but we believe we are now coming back to normal and are well positioned to execute our strategy. As Rick reviewed, our margins have continued to accelerate and in the month of May, we exceeded a 20% EBITDA.
Our financial leverage continues to strengthen, which gives Enerpac the flexibility to execute our capital allocation strategy. Our long range vision as shown on page on the last page of today's presentation is fully aligned with today's results and we Lastly, I'm very proud of the performance of all the Enerpac employees globally, which have endured the past year improving the strength and quality of our company. Operator, that concludes today's prepared remarks. Let's open it up for questions.
Thank you. The floor is now open for questions. Our first question is coming from Jeff Hammond of KeyBanc Capital Markets. Please go ahead.
Hey, good morning. This is David Tarantino on for Jeff.
Good morning.
Maybe to start out, Could you dig a little bit more into what you've seen from service momentum and trends in oil and gas markets more broadly? These 2 have seemed to be the laggards Thank you, again, more momentum moving forward.
Yes. Good morning, David.
This is Jeff. I guess maybe just a couple of regional comments. Our MENAC region, which is certainly our largest service region, really continued to struggle with lockdowns and COVID Restrictions as I talked about. And it's really it wasn't so much the lack of work, but it was a lack of ability to get our folks where we needed to get We do see that slowly coming back. And as I talked about last quarter, we've got a pretty strong backlog of work.
We just got to get Started on it. So, certainly in the Gulf as we think about the Americas, The service has again been slow to recover. I think there's a pent up demand that we're starting to see quoting activity here in 4th. So we're ready to go in both those regions and we do see as Randy's or Rick's outlook for service growth in the Look for service growth in the Q4 compared to last Q4, we do see pretty strong growth for us in our forecast for the 4th as that work starts to come back. It's just a question of being ready to go and having the people to do it.
And then just as a quick follow-up, you kind of touched a bit on this in the prepared remarks, but Most of our companies are seeing demand that's outpaced the ability to ramp production and restock inventories. So So how would you characterize inventories and restocking efforts to date?
Well, as you saw from what Rick said, we've increased inventory Strategically to make sure that we could cover our top products and we've been running a very robust Supply Chain Operations Meeting or the classic sales order meeting for well over a year now that I think has helped us Anticipate these increases and has enabled us to get through it without any major disruption. So we know that that is never going to go There's always a potential for an impact, but when you make I think smart bets on inventory, you can definitely Mitigate most of it and then make sure that your sales volume is maximized in a quarter and that you don't constrain a
Thank you. Our next question is coming from Ann Duignan of JPMorgan. Please go ahead.
Yes. Can we go back to the last question? I think maybe misinterpreted it or maybe I misinterpreted it, but Can you talk more about channel inventories and when they stand up your ability to increase inventories? So where would you see where do you think both OEM inventories lie and dealer distributors inventories are at this point?
Yes. Hey, good morning, Ann. It's Jeff. We've seen a nice pickup in what I call Turn to more normal dealer stocking orders. I mentioned our again another quarter of Declining drop ship rates as well as increasing dealer stocking orders.
So that means to us that The sell through is happening, but the dealers are ordering the right stuff. OEMs in particular, I will make one additional Comment about our OEM business. We have seen, I would say, an uptick from some of our major OEMs that use our components in They're clearly starting to treat us a bit like just another supplier in the global tightening supply chain. And we did see a couple of our OEMs, I would say, place larger bets. I assume and we assume because they're a little concerned about Future constraints on supply chain.
So that was nice to see. Of course, a lot of those orders are with phased releases over the coming Quarter. So but it's good to get the orders in our backlog, so then we can do our planning appropriately. But yes, both Americas, I mentioned MENAC, I mean stocking orders coming out of distributors in MENAC have been few and far between over Several quarters and we did see some nice uptick in those Europe and the Americas again, Nice stocking activity. So no question we're challenged.
We've got some challenges in our supply chain, but it's nice They have the distribution partners stepping up and doing their part, so our availability to our customers stays pretty high, which it did throughout the quarter.
Yes. Again, that wasn't the question. The question is, do you think that the dealers and distributors now have
So, Ann, I think what a lot of us have seen in past is that And you can see it in the channel check reports that are going on right now that certain types of products are simply stocking out, which means the dealers Our reporting in availability of supply retail demand. What Jeff mentioned is that we haven't Had that instant yet for Enerpac. Our ability to ship out of our facilities is still quite high. We have an OTD rate which is still Very, very good. We track our past dues at a high level so that we know exactly if that is climbing or And that's still in good shape.
And quite honestly our dealer councils will speak to us loudly if they're trying to get retail orders And we're saying, well, we'll talk to you in 6 months. So I think in our case, the channel has Healthy inventory that's moving through. They're not experiencing stock outs that are either resulting in them going some We see in a lot of other products and you read about it, there just isn't availability of certain products in dealer channels of all types and That hasn't been the case for Enerpac. I hope that answers your question more clearly.
Yes. That gives me a good sense of your inventories at The dealers are more normalized, so there isn't huge pent up demand there. That's what I think we were trying all trying to get at. And then on the cost side, can you talk about I think you said I want to make sure I got this right. The price increases you put through effective mostly June 1 will give you $2,000,000 of offset in Q4.
I think you said last quarter that steel prices back then Could drive increased costs of $200,000,000 to $600,000,000 on an annualized basis. So how do we reconcile the $2,000,000 On a quarter, that's far away shy of $200,000,000 to $600,000,000 in annualized higher steel prices. Can you just talk about What we should expect in fiscal 'twenty two?
Sure. The $200,000,000 to $600,000,000 was back half. It wasn't on an annual basis. And we also talked about aluminum increases. I didn't give a dollar amount there, but 3% to 6% on aluminum.
And we also last quarter talked about airfreight at that time being 2x normal So our overall cost increases, that and some labor, Those are what we put in place along with some other known or anticipated cost challenges, things like plastic. Those are the actions we put in place to the $2,000,000 is designed to offset that $200,000 to 600 $1,000 I think I said $1,000,000 And we feel good about those. That was what we knew at the time. And as we talked about, we've got We've negotiated pricing with the steel suppliers that got us through Q3 And we believe will cover us through Q4. That's true of aluminum as well.
So we feel good about that $2,000,000 getting us through Q4, as I noted, freight cost is continuing to accelerate, steel is continuing to accelerate. That's what points to either surcharge or additional pricing here, early 2022.
And you'd expect those additional price increases and surcharges to fully offset The anticipated cost in FY 2022?
At this point, again, we're going to do what we did in Early Q3, we're going to put in the pricing to offset kind of known costs or our estimate of The impact here in early 2022, as we said before, If we fall short there, we're demonstrating that we have the ability to go, and do incremental pricing as necessary.
Okay. Thank you very much. Sorry to drag it on. Appreciate the color.
Thank you. Our next question is coming from Deane Dray of RBC Capital Markets. Please go ahead.
Thank you. Good morning, everyone.
Good morning, Dave. Good morning.
Hey, if we just stay on this topic, if we could, just a couple other data points would be helpful. I really appreciate all the color you provided so far on Raw material costs and calling out freight. Just real curious, if freight is trending higher, why would you Why are you hesitating on putting through surcharges? I just think you've got enough cover here to do it and you can always roll them back when you need to, but why the hesitation?
There's no real hesitation. As I mentioned before, we did do pricing and part of that pricing did pick up Some of the anticipated freight, we have gone through and we anticipated some of that From a cost perspective as we came into the year and in our back half guidance, If freight gets out of the range that we had in there, then we'll do the surcharge for sure. The thing about freight is It's gone up, it's come down, it's gone up. And right now, it appears to be on a steady climb. But even that, It's settling a little bit.
And so we're really just watching it closely. And if we get to a point where we think this thing has settled up and climbing, Then we will go to a surcharge. And you're right, we can do that. It's not didn't mean to Put it in terms of hesitating to do it. We'll do it if we need to cover the costs.
That's real helpful. And then if you could Expand on the point on labor shortages. We're hearing this everywhere. And for you, it sounded more of a wage pressure. But You have unfilled positions, you're having trouble getting workers for the factories.
And separate question, any pull in From the for the Q4, do you think when you announced the price in effect for June, did you get any benefit Pull in as customers trying to avoid that next price increase round.
I'll start with The pull in comment, we don't typically, we don't see and didn't see a significant Impact of pulling in, I think you've got a combination of things going on here. You've got the demand And people needing to get that inventory, but also being cautious about it, We don't believe that our pricing drove a tremendous amount of pull forward that It's going to impact us in Q4. To Jeff's point, our distributors are getting their orders in there. They're staggering The delivery dates, but they're giving us the early read because of the demand situation, because of the supply chain situation and that they're hearing and it's impacting not just us. So we feel good about that.
That's a good Fact from our distributors, but don't believe and are not seeing this massive pull ahead of orders that would impact Kind of the sequential growth that we're talking about.
Dean, on the labor side, it's primarily a North There's no question that we've got some open positions for a variety of reasons. There we are seeing some wage Pressures and the good news is that that's pretty easy to do your market comps and make the adjustments where you have So there, getting the right people in the door is really our focus and as long as we're paying competitive wages, We've taken those actions. So, we made some progress as late as last week in getting some open heads filled, but we Got a little ways to go. But again, it did not really impact our ability to deliver in the quarter and we don't see it as a Strong negative to our Q4 either.
Good. Just last question from me. There's been a couple of iterations of the infrastructure bill, but every time on both iterations we've seen call outs about bridge Repair, bridge, building and I immediately think of Enerpac and how that's typically a really good opportunity for you. Do you have Line of sight on the proverbial shovel ready projects related to what Looks to be the most promising infrastructure bill related initiatives?
Well, typically what you're going to see once That bill is released then there will be prioritization by state of their normal DOT Priorities and from that's how our typical our distributors will have a line of sight to what bridges or facilities need to be worked on, Particularly for suspension bridges and for abutments that have to be lifted up. There's a lot of cylinder work when you're putting in new abutments. So I think once it's signed, you're probably going to see a couple of month delay before the actual DOT bids are let. And so definitely there's an infrastructure bill late in our fiscal year is going to be a 2022 impact probably late 2022 before late 'twenty two before you'll see significant amount of lifting equipment and torque tension equipment getting sold. So either way it's very good for us, But there is also a lot of going on right now.
And the knock on effect, not just the actual work being done, but the folks that are actually doing The major construction companies and equipment manufacturers, equipment rental houses, a lot of our tools are used on the maintenance and upkeep of Heavy excavation, bulldozers, excavators, things like that. So that's really the second line of offense for us as well and
Thank you. Our next question is coming from Brandon Popson of CJS Securities. Please go ahead.
Good morning. Great results. I want to ask first on Europe. You talked about last quarter Some challenges with the infrastructure and bridge work. Numbers were great this quarter.
So it seems like a lot of that cleared up. But is there Any headwinds there in Europe or is it all pretty normal now compared to where we sat last quarter?
Actually, Brandon, it's Jeff. Actually infrastructure has been a fairly solid story in Europe for the last several quarters. So I'm not Exactly sure if we talked about headwinds there, but yes, again, strong quarter. The bridge work, Civil construction has really been a nice story in Q3, and we don't see that letting up.
Okay, great. And then just looking at your long term goals, exiting the year pre pandemic levels and That would indicate adjusted EBITDA approaching 21%, 22% after your cost optimizations you've done, but There'd be some pretty very strong incrementals. And of course, you have these increased costs going on presently. So I guess Netting all of these factors, I mean, is that kind of structural margin still possible at pre pandemic levels with This price action that you're doing, and could you kind of help us net all of these things that are going on and where you
I think it's one of the things that's really important that we saw in the month of May That we went through the 20% margin level. And that was a nice milestone because that the month of May, although good sales, We're basically where we should be in any given core month. So when we think about going forward and The things that we talked about on our margin progression, we have very high confidence that the 20% level is sustainable And that the incremental margins as we typically talk to the 35% to 45% are going to be an ongoing factor for the business because we do have very, very strong Underlying gross margin and gross profit. Now that the costs are aligned with the size of the business and we're getting good productivity out of our facilities, That margin is going to flow through. So all of those factors make our long range strategy in terms of margin expansion Not aspirational, but highly probable.
And we think that as we talk to our Q4 outlook That we will still be at the very high end of our incremental range which implies that we're going to be at the high And what we exited this quarter and arguably knocking on that 20% level. So I think I'm very confident in it. It's the business is certainly back on its feet to where we were pre pandemic. So now Our management team is now highly focused on how do we continue to grow and execute the strategy. And that's an important element.
Now we're in
Great. Thank you.
I'd like to add just to add a couple of other comments to that. When you talk about pre pandemic, just to be clear, we're talking about pre pandemic sales levels. Prior to the pandemic, we were dialed back Fiscal 'nineteen, we were well below 20% from an EBITDA margin perspective. As you saw throughout 'twenty, we've been delivering Incremental margins outside the top end of our range for what was our normalized incremental margin range. As You should be thinking about this as continued delivering strong incremental margins That incremental product growth will drive those margins to be certainly at the top end, if not better than as you're seeing right now.
And that's really part of how you get to that plus 20 and beyond. And to Randy's point, we're confident that we're seeing Sales levels that were pre pandemic and obviously we're confident in our ability to continue to grow those per the strategic plan.
Great. Thank you. And I'll just quickly follow-up on my first question. I actually misread my notes. The delays infrastructure bridge Chile's were in the U.
S. So if you could just follow-up on anything there with the infrastructure work?
Yes. Okay. Thanks for the Clarification. Yes, we're starting to see some of that break loose. We talked about the infrastructure, Bill, but just More than anything, it's just folks getting out and getting back to work and certainly the release of COVID restrictions and things like that is helping.
And we did see a nice pickup in general construction as well as some of the infrastructure stuff here in Q3. So we see that continuing to get back on its
Thank you guys very much.
Thanks, Brent. Thanks.
Our next question is coming from Justin Bergner of G. Research. Please go ahead.
Good morning, Randy, Rick, Jeff and the rest of the team.
Good morning. Good morning.
Good morning.
Had sort of a 3 part question. So you mentioned that in the 4th quarter on time delivery Is that mainly a function of freight uncertainty? And then I guess the 2nd part of the question is the revenue range for the Q4, is that more tied to Supply chain issues and is to demand from your vantage point. And then I guess the third part of the question is Given that you've been able to deliver at least so far to your customers and distributors, do you see yourselves as gaining share Because you're able to meet demand where some of your competitors are not. Thank you for taking the various parts.
Maybe I'll start with the freight question. I don't see any particular constraints from our capacity point of view, certainly freight has been a bit of a Wildcard delays and we're getting everything we're ordering. Sometimes a container or 2 shows up late, which Means we have to scramble out of one of our plants to assemble and get the stuff back out the door. But Generally speaking, yes, that is the variable in the quarter. We're making certain assumptions around order rates going through the quarter, which we see as Strong in June.
We don't see any reason to believe they're not going to continue to be strong for the rest of the quarter. We came into the quarter with A fairly healthy backlog, which we like, and we're working hard to get that out the door. But yes, a little bit of The delay in a container or something coming out of another part of the world causes us to scramble, but it's not going to be
So Jeff touched on the Q4 revenue outlook. And The reason why I made mention to the June inbound order results is they're positive. And we've tried to give some clarity into that On prior quarters because when you're reporting our earnings essentially as we wrap up June, we have pretty good line of sight to what occurred And 35% up versus 2020, that's a good number. And 10% up versus 2019 It's even a more encouraging number because in 2019 that was a decent quarter. And so the orders certainly support Continued revenue growth and which gave us the confidence that the $290,000,000 to $295,000,000 level was the right thing to do to reflect that Number 1, sequentially, our typical Q3 being the strongest quarter, it's probably not going to occur this year.
It means that sequentially we'll We'll continue to strengthen and we'll exit the year in a pretty good shape. So we tried to give you enough clarity in terms of Guiding out for the full year of the $290,000,000 $2.95 number to give you further clarity that our inbound orders are Better than 2020 and also better than 2019 and that we expect the typical sequential effect So Enerpac to be a little not be the normal which is that Q3 is stronger than Q4. So we've given you some data points to help guide you Words where we think we'll land for our Q4 and setting the stage for 2022.
And maybe I'll follow-up on your share question. So many of the things that we sell, it's a little difficult to give you an exact share. But I will tell you anecdotally, we're hearing from some of our customers and distributors that some of our competitors are having a hard time delivering on Time delivering all the products in their line and the fact that we think that we're doing a better job there. I would The optimist in me says that we are picking up share. Again, a little hard to measure that, What we're hearing from the marketplace is that we're doing well on delivering on our commitments and there's some folks out There that aren't.
So that's about as granular as I can give you on that question.
Okay. Thank you for taking that multipart question. Appreciate it.
Yes. Thanks, Justin.
Thanks.
Thank you. Our last question today is coming from Michael McGinn of Wells Fargo. Please go ahead with your question.
Thanks. Can you walk through the timing and rationale of the China facility closure with demand ramping, Lead time is extending. Maybe what other actions like this are left similar to the China facility closure, the Cortland Facility
consolidation. We put out there that we were continuing to look For footprint rationalization. So even in the midst of rising demand, we obviously wouldn't take Capacity out, but we do want to make sure we have the most efficient footprint that we can have. It's on our margin walk That we would deliver savings from that. And so clearly, we believe there's opportunity.
This was One step where we had a facility that was a large facility in China, we had both businesses Operating in it and we still had incremental capacity. With the split off of ECS, We don't need that footprint in China. And so we sold the building As a part of exiting ECS and we have other facilities in China and we're leasing a small piece Of the building, probably less than a third of the facility, It's a 4 hour ongoing work and ultimately we'll make the determination if that's where we stay long term. But we're left with less than a third We need the capacity or we'll ever need that capacity in China. So it's a all of what you see from Facility and footprint rationalization, all of those are planned, all of those are moves that we Have indicated our structural cost moves that we need to make to hit our strategic objectives.
Got it. Understood. And then can you walk me through the tax rate? It just looks like taxes payable on your balance She doubled sequentially, EBT was up 4x sequentially. Just walk me through the mechanics of that And what your normalized tax rate on a long term basis is?
Sure. We first to the latter question, we said for modeling purposes use 20% to 25%. For taxes, we had historically, we moved 20%, reform put us in that range for now. And so that hasn't changed with what we've been talking about. Our tax rate is usually lumpy.
It's Just based on the seasonality of our business, first half being the lowest half, back half being the strongest half In this quarter, we had a couple of things going on, one being The release of some valuation reserves, if you will, or reserves associated with uncertain tax positions that went through an audit And we released those, we non GAAP those out. And then also the jurisdictions of our earnings. And so you and we had a favorable tax law change here in the quarter. All of that anticipated in our overall rate, that's why you haven't seen us move the expectation for 2021 at all. It's just you will as you look at us, you're going to see a lumpy rate throughout the On a quarter by quarter basis and we seek to kind of guide to that full year REIT.
Got it. And just to put a bow on this, can you characterize the length of the incoming blanket POs from your large national account Customers and distributors relative to the length of your lead time average lead time?
Two things, and then I'll let Jeff We really don't have blanket P and Os, and so I just want to correct that. But we do have What I'll call some forward ordering from our nationals. And relative to how that matches I think as we've been talking about, so far we've been able to navigate that and deliver. It's on us And thus far, we've not had issues meeting any of our customer demands nor as we sit here today do we have concerns
Thank you. At this time, I'd like to turn the floor back over to Mr. Baker for closing comments.
Great. Thanks very much, operator. So as we wrap up today, clearly we've had a very good quarter. The business is on very solid ground as we go into our Q4 and get prepared for 2022. I'm very proud of the team.
I think that we've done a lot to improve the margins in the business to realize our goals at 20%. We've been able to unlock the margin value of this company. And most importantly for me as CEO, we're now at a level that where we can start executing our Strategy to the fullest extent that we had planned pre pandemic. We now have the margin capability, the cash flow And the liquidity as Rick mentioned, this company is in one of the best positions liquidity wise that we've seen in a long, long time. So Our capital allocation strategies are very well within our grasp and we're able to start moving hard on that.
So I can't say enough for the effort from this team. It has been a great time watching us come through this and successfully navigate Probably one of the most difficult times any company seen in their history and we've done it successfully. So I just want to thank all of our team And look forward to the next quarter and continuing on. So operator, thank you and thank you everybody for joining us today.
Ladies and gentlemen, thank you for your participation and interest in Enerpac Tool Group's conference. You may disconnect your lines at this time and have a wonderful day.