EnPro Industries (NPO) 21 Feb 232022 Q4 Earnings call transcript

Hello, and welcome to the EnPro Q4 2022 earnings conference call and webcast. [Operator Instructions] As a reminder, this conference is being recorded.

It’s now my pleasure to turn the call over to James Gentile, Vice President, Investor Relations. Please go ahead, James.

Thank you, Kevin, and good morning, everyone. quarter XXXX fourth conference EnPro's to and earnings full-year call. Welcome call. is you the at this that remind being presentation our accompanies find I'll can call webcast you EnProindustries.com, that where President With and Childress, me Vice Chief and Officer. President Eric today Vaillancourt, Executive Chief Officer; and is Executive Milt Financial our An the XXXX of continuing we important EnPro. fourth be will full-year that and the operations discussing reminder quarter results today, reflect former the Engineered operation, the of Materials to January In determined third GGB discontinued completed we XXXX, be November year, components, and remaining our we in of divestiture quarter, its a respectively. GPT, and segment and last in data has financial Advanced go-forward Technologies reflect our and portfolio comprised Surface Technologies All recast the Sealing been of segments. to

on financial comparable reconciling to we not statements impact the the from any rate reminder subsequent the During not obligation call, call update non-GAAP measures and rate fourth will measures, end forward-looking outstanding, historic to GAAP that in are presentation providing uncertainties, and number transaction in measures. shares impacts friendly do of XX-K making Tables the and incremental XX-Q. these risks to the related tensions market uncertainties, that will today’s and number in costs, involve materials. recent undertake differing of of as from of forward-looking historical the call, dispositions SEC, of we unforeseen foreign appendix the in the the these which that be included reference exchange geopolitical that are of from in a a to our facts are impacts statements year to our excludes the this guidance, changes outlined We increases costs statements. Also, non-GAAP this demand on quarter variable restructuring be interest most Also full guidance. end of and described assumptions XXXX those the Form as including well including during future Form trade and with costs, nature. we fourth subsequent changes inflation, and a impacts acquisitions, the risks quarter, will and These filings note number considered

now is Eric our over Chief Executive Vaillancourt, and President the turn Eric? to to call Officer. my It pleasure

everyone. James, us for and our Thanks, includes good full review XXXX, fourth you and as XXXX. for for we update our provide quarter business joining morning, the a Thank year today results outlook and that

would has the Before our of from I his like absolute We been I Bernard years retirement the our get Board started Burns go-forward best. to past this a XX our invaluable over wish strategy. Bernard service His morning, on and company, celebrate to Directors. people,

also We Keating and will Directors, to contributions pleased are to forward future that our of joining company. his our to look Ron be announce Board

to that points. engineering portfolio more labor advantages. compete macroeconomic supply EnPro in interest technological continue have inflationary we face, which and people. further applied our high-margin robust year a these pressures, We an where EBITDA businesses portfolio a as delivering have of segment, path officially adjusted challenges and market, and margin was Materials optimized chain outstanding resulted of than and optimized In month. driving that and as our increasing sales a growth despite we to organic others expansion last XXXX, - commitments constraints, such and results focused diverse rates. on XXX variability, portfolio XXXX by our portfolio many forward the We the the and geopolitical in completed of tight down we Engineered exiting shareholders, We basis achieved markets streamlined continue we now our customers,

resilience continue pillars leading differentiate technology to EnPro teams our company. by how of proud as industrial advancing a strategic are to We demonstrate our

and grow responsibly purpose on build our well now the future. into We will profitably as technology and with momentum empower we

turn on then and results more fourth Milt now jump will and the quarter for to details I'll share XXXX, XXXX. highlights our year full our EnPro’s to outlook for

strategy. Our an XXX initiatives, operational and by primarily sales by and basis, optimized pressures, partially increased offset across XX%. actions, sales support margin and each integration strong operating volume markets ongoing $XXX.X and EBITDA incremental costs to wage of XX% strategic associated Higher our as of XX% to driven increased pricing more this organic as of Adjusted points, portfolio sustained million, freight and organic efficiencies, growth. pricing most result material grew year. opportunities. contributed a inflationary NxEdge of investments organic higher our including basis with portfolio-reshaping On compared increase, drove benefits significantly These Adjusted the than cost, EBITDA well XX.X%, the were sales XXXX. over growth

nimble, through constraints. team remained execution as with chain we pressures inflationary Our supply swift navigated and

supply company. the our chain, efficiencies Our as operational support procurement, well and company, supply personnel commercial chain the throughout and health teams, environmental, continued to as excellence and discipline, across safety, safety

Sealing exceeded of For adjusted a EBITDA of XX%, our target position. pricing, Investor Sealing Technologies XXXX our Volume profitability set during earlier Day. We the strategic growth, operational years strong each in the enter and than businesses. year, three drove XXXX margins in Technologies forth segment XXXX efficiencies,

fourth around invest semiconductor with segment Our an ended in Technologies continuing market quarter, Advanced demand the seen in in and Surface in to the despite late weakening growth EBITDA of segment while XX%, adjusted year long-term the margin opportunities.

the of are build and of excited and regional ability vertical year. as semiconductor opportunities weather to capitalize technological AST, confident we created weaker process will chains ahead the development market out supply expected in by this and us integration our We for node the Our know-how benefit remain strategy semiconductor our about capabilities many for opportunities advanced on production. suite

XXth has times. year an optimized balance position place, as to in current our grow. been wrapped a company, public with now up a strong never of EnPro just our with have we We and independent ratio a in sheet, portfolio leverage X.X better

inorganic enhance, our build expanding capabilities our of portfolio our many leading-edge both we and and in, opportunities applied organic to as invest and applications expertise to across key continue will engineering We and markets. growth evaluate

on to within focus our which Our work we sustainably way the continue communities and developing culture and drives operate. we the will people we improving daily,

great have measuring governance EnPro natural the our improving outlined utilization efficiency made environmental, each facilities, and in for priorities and We forward. of we social, our to established year. and water has last continue already gas, strides electricity, plan and baselines we usage, resource moving

senior inclusion are our more we and/or the equity, our and XX% than organization, and Additionally, advanced three diverse into colleagues, by talented ethnicity. diversity, gender of levels initiatives,

solve the learning applications our publishing critical and and that we we development company all work where products of work in sustainability an responsible find processes day, become defining purpose impacts, as our that have each central later lives resources future our and for and lives providing around drive Internally, touch and with to work with will been them our this spring, efforts are solutions technology next culture the repeatable. opportunities Our forward. report hard EnPro. every our leaders our environmental mission empowers plan throughout on our employees, been of and our their great organization the of in to both organization world improve empowering Each our colleagues, of the at in customers highlight that ongoing problems government families, our purpose. their and our colleagues has to our with communities, of limit We

fourth results. to over for Milt a quarter thorough turn into now look the I'll call our

more mentioned, costs points growth, the XXX pricing benefits partially operational strategic compared period. pricing and off XX.X% and year Organic Eric EnPro's year reported weakness during XX.X%, quarter Thank Volume as at efficiencies, company, good increased driven, strong increased you, than demand expense sustained prior compared wage most the and $X.XX, in margin the offsetting price balances, to share period, income of end quarter increased investment interest share in of from the inflationary experienced during the growth compared price our $XXX.X year year-over-year. adjusted from higher actions. ago, and year-over-year. a quarter. of net performance year, capital of for that the from strategic absence Adjusted offset and year earnings more fourth million Eric, by optimization, rates, by with by driven than resulted higher by volume diluted everyone. higher last as increased million of in raw the of mix. market late in quarter offset expenses EBITDA $XX.X our sales the expenses and fourth morning, mostly and major share that incentive period, EBITDA And the $XX.X more higher by quarter sales the expenses strong to reduced equipment operating material interest million partially of fourth markets in than our XX% primarily a increased portfolio benefit million quarter hedges actions, compensation prior of million debt were in capped the Adjusted driven increased XX.X% strong compensation basis a $X.X down from $XX.X resulting were to XXXX. per expense of XX% acquisition-related semiconductor rise affected Corporate XXXX, incentive

volume segment of and and the aerospace, Sales industrial, quarter and markets. of performance, increased sales duty pharma the Technologies’ of organically Sealing strong heavy discussion fourth successful a million, strategies, to by in XX.X%, general pricing over increased food Moving $XXX.X XXXX. X% driven truck,

segment For with XX% segment EBITDA the year, more EBITDA adjusted an adjusted quarter, over XX%. prior over increased than fourth margin

growth, Strategic improvement raw divestitures, increased the freight pressures operating costs. and pricing from exchange in portfolio XX%. on EBITDA leverage sustained to sales profitability, offsetting more and the contributed actions foreign of than operational years, efficiencies, impact in recent and labor, the completed Excluding adjusted of benefits segment materials, segment reshaping inflationary organic actions, about

even the Technologies, $XXX.X midst demand the Advanced NxEdge, the by prior over of late driven Surface quarter Turning market, in increased more to in the softness the increased quarter. of semiconductor and broadly, now year, XX% fourth of sales acquisition in million,

impact XX.X% the year. prior and Excluding translation, the exchange versus sales of foreign acquisition the increased

growth, semi semiconductor softness affected approximately adjusted the of of of increased driven quarter, and segment fourth acquisition NxEdge, offset the EBITDA markets business. the adversely our absorption of prior strong that in and primarily cost sales product quarter volume, period, the impact For parts year fixed the by versus in mix, variable organic late by XX% and

the Excluding market EBITDA continuing reduced are of in of market, far to and growth semiconductor XX%. Notwithstanding the we recent increased invest the acquisition segment our translation, exchange current adjusted Surface impact Advanced segment headwinds. long-term the as in outweigh in opportunities segment, demand foreign Technologies parts the

As which support the facility future driven States, the up an the quarter, during updating semi completed in be the year facility. of regionalization supply the we In we'll United purchase the of by demand in a ahead, example, the fourth will Arizona, chain.

with previously, a robust solutions, for leading-edge of us of advanced the our products production. depth the Across we portfolio As talent, focus on our strength unique will and wafer this innovation have of node solutions and proposition for noted customers. value engine, facility our our segment, provide

are confident to AST long-term that poised growth capture organic is We opportunities.

$XXX acquisition we repaid the the balance the back after-tax debt cash to was analysis, our from EBITDA of flow of availability Turning with XXXX, million internally million more as the our expect generated $XX.X to Engineered Materials of than In ended about subsidiaries. $XXX million, using proceeds less additional the LeanTeq from interest XXXX, repatriation of At foreign X.X and bring net ratio our In end million sheet from and we locations, XXXX. noted, the to outstanding currently and just the $XXX of in $XXX million cash, Eric times. an X.X letters in revolver, in and and of times, non-controlling stands quarter in in we cash under credit. adjusted net approximately cash divestitures, inclusive full million borrowings, repatriated December, $XXX cash foreign at of

Eric our As in balance shape. excellent highlighted, sheet is

to when estimated company. an approximately expenditures GTP. initiatives, the on financial and ample in strategic $XX tax flexibility of Capital XXXX, invest on to up $XX working in was purchase to $XX million both support We selectively our generated of supply cash as to inorganically, we primarily $XXX to growth in flow capital payment to on million have respond chain, we as the totaled the high modestly, We gain demand, Operating free execute of the drive organically sales constraints sale million, long-term from of million inventory certain of relative Arizona quarter inventory facility. due up last and the value products. build fourth the year, customer continue excluding

to our share million the totaling approved a $X.XX a paid February per for dividend X% we dividend XXXX, XX, the Directors increase share. quarterly On During $XX.X year. Board of to per quarterly $X.XX

moving Three additional note to before quarter items for our outlook to year on the the ahead.

impairment The in in cash rates. for million non-cash rate of we with expect recognized double-digit acquired for flow The earlier business charge we goodwill the in grow rising interest the First, and rate a the XXXX. most outlooks, business, which the of provider to quarter the Alluxa to approximately resulting higher $XX.X from future. the both an the non-cash was increase reduced was charge, impairment low optical compared this quarter million. filters discount the we fourth projections advanced a rates of applications, impact fourth in of Notwithstanding single-digits into at well the $XX discount high Alluxa, function

million. XX December earlier, to in full our This we non-controlling in $XX our include who The remaining last redeemable reduced business. non-controlling acquired Second, relate of net as remaining alluded leverage LeanTeq, this to which in former interests remain held interest purchase year, the its non-controlling leaders Alluxa. by to we in owners, calculation interests,

that announced of following completed early the we in the review we year. last strategic ago, three Lastly, divestiture weeks of September GPT,

expect transaction. proceeds million net after-tax of receive the We approximately $XX to sale from

our guidance, this expect full during at be portfolio to could EnPro remain from low consideration well difficult expect Moving range. single-digit high flat and the Taking we semiconductor expect that macroeconomic mid-single expect sector. the in in all time, our low in to sealing year we businesses know optimized growth margin constructive, Order In year. the digits. a in to XXXX segment, a into Technologies to particular the total the sales be patterns start we in Sealing factors strong now year to revenue perform to a we what growth the of perspective, we

half nature of large markets difficult such more makes portion and and an demand in expect in pockets and food other aerospace, see perceiving outlook, to general strength short serve to industrial economy. of markets as we cycle we segment, Technologies, second we Sealing of energy, uncertain the macroeconomic predict. the nuclear Within mirror pharma, our a along largely The outlook with

brands revenue, Surface currently Technologies sales offer year. the two be which propositions strengths the to our independent thirds softness, mix, value economic flat strong for aftermarket of In approximates and a negative economic Advanced strong X% cycle. and during Our to enduring of we of segment buffer range the provides expect segment, periods the in currently of technological

in both production the of wafer half second capital growth with that assumes guidance Our in stabilize first resuming the and the equipment demand half. year,

We drive in outperform on near-term promising long-term, growth, opportunities capabilities. noted in in the overall segment As market in remain invest earlier, while to confident we'll our to while the semiconductor continue focusing to the high-margin the to invest ability controllable leading-edge costs. continuing in our

to adjusted EBITDA, adjusted of a we $XXX $XXX $X.XX per earnings For million million. of share. And $X.XX per for diluted expect to a share, range range

translation relative recall, you combined from benefited headwind creates As at which, rates, a our current $X transaction XXXX. may adjusted XXXX million in currency-related XXXX earnings with to gains, EBITDA exchange

Also calculate lower investment interest $XX despite million. In compared in net from approximately diluted interest as that last to in note, result of addition, down debt of of XX% earnings expense per net to XXXX our reduced increasing of XXXX, portfolio-reshaping used result our exposure. the benefit rate significantly the year, and XXXX in actions is tax hedges share XX%, rise have in net reduced will completion normalized a European to rates the adjusted

strength. we have past, will in a As of company value-creating our any even attributes to greater the focusing through on position in the by challenges of emerge long-term navigate we

turn I'll some Eric Now, the to call closing for comments. back

year for We as EnPro. our continued XXXX portfolio was Again, outstanding an and promised. well executed optimizing

that and our of we needs With market-leading safeguard portfolio our the the meet customers. critical XXXX a enter divestiture of optimization efforts portion of portfolio environments, with streamlined complete, businesses mission-critical

like across dedication advantages. markets through our operate are terrific thank I'd where to positioned moment in we well your our growth a take for attractive for of all end EnPro technological enduring colleagues to Our businesses performance. and

continues foundation hard of be success. to Your the our work

We appreciate to our Thank the you interest line company, and again for now joining today. us open in questions. your

Markets. [Operator KeyBanc is today Capital coming Our Instructions] first from from Jeff Hammond question

is now line Your live.

everyone. morning, good Hey,

legacy Is maybe give else? coating? on in a of picture you're little better dig to seeing And just that Is just somewhere of XQ, versus and just semi mix is how it it. XQ understand it and you where it the of kind So, business? softness, kind Is of the then cleaning trying bridge us drop for I'm kind long-term. the of this in investments the margin to pretty of Thanks. issue steep absorption to kind from can much

Eric, do parts did certain Jeff, see quarter, you that at want some company come our industry, then in if you the downturn the yes, did we than look the affected color? of some me quarter to it and jump us So, in you more fourth in in of others. in semiconductor on the please late with

our was affected. business higher coatings of margin Some

the happens or essentially fairly precision machining of which, affected, your quickly, the all cost business and - costs. short-term Some was when fixed the in something

and the mix so, both a given inability degradation in in largely QX fairly adjust to the AST that the from And abrupt structure market QX you margins saw to and change is a cost dynamics. function the of

cleaning So, business solutions other quarter. our perform in continued to the parts, well

continuing were backlog. legacy, a off Our strong to work

we yes, not the across pockets, saw So, in it board.

think your costs. note on variable that most questions. taken of action addresses we I the I So, will have that

that and So, you that, be earnings. specifically talk next to will more call. see on about our able we'll

if is not Yes, have might up investment kind that XQ. just opportunities. of stepped other growth around the capitalized don't been only that in piece know I

as It with up progress Yes. step more expansion - the we the probably in to and was it’s more Southwest. starting

in to the in beyond suspect quarter. capital XXXX. on investment to an to digits as mid-single $X.X $X And And There'll side $XX then up would as perhaps standpoint. expense I operating probably I going it come million more continue we be next million upfit. million, sub the be from to gauge the looking of in it we're kind ahead So, range was year,

the where for investments, structure us that the color of that more maybe to a or little are of this flat we maybe on some you five. level-set you And closer the down And think a Okay. XX, to margins you to AST just adjustments that with are on year. XX make did in Is just kind versus or set end? line good cost

the Yes. I sealing say. in a asking for of I but here's It’s a of in stability. two which of what year position. of us is about AST, to tale And Well, first say we're you're really cities, entering would in know kind terms great a all, positive

strength we'll the see half in second economy - And the the we're then the what strength us we'll of now, year, then expect but it's the continued as accordingly AST, at it and half, first opposite, reverse. We there. gives in adjust the looking

the into still and for to then and you with entering to outlook, down, assume know, we're segment. this second half. growth. So, XXXX And long-term being expecting as volumes XXXX But growth then and expect very resume that to we're is we in positive stabilize the

volume see half, and and And I be the your margin, so, back you around half? to bounce volume we question the in number, what kind kind specific on is of but excuse volume - we color do how know is in about be of largely just I the that's question me, that. largely second first then a didn't give decline a of going to do going

Jeff, it's Eric.

as on and maybe maybe because us uncertain Let the to some even more little a me it's give well. less or and that'll help, you it'll maybe provide backlog clarity, color

last overall, at at year call time, in is the over sealing, backlog, compared near-term XX this up, backlog and the what If you I also to longer-term, look months. both

So, up in both places. it's

also look AST, at that's you If true.

‘XX stronger It's than the and December backlog also our of December is stronger near-term long-term. So, XXXX. in of the XX XX

look uncertainty foundation business a And it's from sequential There's environment. the fall-off if of also quarter, fourth the first very is strong. you at still our macroeconomic to in quarter So, normal. very, lot

don't have short-term, number visibility a we give a our that's So, I of moment. precise at to lot of think, more and the lot in a businesses the hesitation, you

visibility half some here market last semiconductor that that in of an is of that the just then backlog AST have or some the on a opportunities one, function expectation this you a the is recovery, that in Okay. or recovers, second growth US? or of hand the And forecast

of in function all half from is you assumption but recovery. are a industry it, It's as primarily of our second experts we're with seeing aligned what

this Yes. And point. what by backlog and customers it’s we're from at hearing supported our

do to We Yes. expect market. the outperform

be visibility than have you much or at that, the So, stronger time. look only but we if Gartner at others, that's the expect we to

Okay. Thank you.

you. Thank

is coming from Steve Company. Next from question & Ferazani Sidoti

Your line now is live.

this morning, dig morning. side, quarter. all strong the I Good into Why really sealing other which the Appreciate everyone. detail reported the call don't another the segment, on

Sounds end to healthy. of larger your look continue some markets like

can mid-single-digit then how to Some if trying they much volume I'm need XXXX, and of can of of as healthy mid-single-digit and a sense to load spend look to give sticky guess, be forecasts. like continue has looking will in up how can a look sense the terms is you instance, flat some price the of you next that's on us versus volume, through of XQ pricing, be at For get be? year, pricing I or so you're industry been that and growth. there? out that your only pricing you

I would our sticky. very, very pricing is say

So, it have change some that leverage but either. then we surcharge, typically do We much. don't doesn't

example. go adjust as up So, and as an and freight does will that down

would price. So, of it's I a mixture say

carryover detail, product increases always by line pockets see have from product But some in price of year we'll increases have at last I We also this for and line. lot point. a certainly, don't broad-based customer price

we've year, the in similar than had price less say would I organic and So, certainly, growth last

little price would was four, sealing, Steve, four a for bit - weighted weighted volume more in heavily just a heavily toward probably results. And little I price the equal, largely versus bit quarter quarter say in

second that out some year, about think be over trying price hold why markets just end - couldn't growth half. and those I'm that through just at right? if is you're on those play least half looking single-digit up alone, next at, higher second obviously So, low of if XXXX we to

year. outlook going half or largely the what happened macro versus second in the certainly to based this be actually on it's possible. Yes, It's

So, entirely right, you're Yes, Steve. possible. it's

around just demand So, at strong around look quarter caution a we very sealing. And half. then little entering of have to second you we're four, in the trends, kind if position say the current

The there'll on guidance, the variable, your XX be further repayments? million in it We of million, some like that expense but that interest XX quarter. interest million s assuming anything guidance on $XX net on looked was it about know hikes debt

we're - how half, we sheet our No, outlook of a for and at are this cash then our out. the get have just preserving first see point, the And the plays when we position to year half. the balance half for first idea we'll to second better the

And very want we so, in we're can. we much as this to uncertain just and being cautious preserve capital as environment

half of it's Now, second as revolver. needs capital are, We we off revolver possible what likely and of it's could totally that our business paid our of or in debt. year, balance. the get the we'll for see reassess, whether depending our out investment I all term on pay it’s we what that we the of and inorganic opportunities We're think our organic, down choose our to to some

unsecured the So, besides debt penalty notes, debt, senior without we are that and outstanding any term we can prepay only time. some our have

not and for in net us interest this our Steve, we about interest last year quarter, then, And to million in just recur had matured purposes quantification modeling, do expect just one cash we remember and collected the that September year. that hedges that during a of saved time. $X And expense note, expense

but tied as our the reason still same And appropriate from two euro-denominated was European portion of the of thing. hedge mentioned, hedge the our it's that company. investment James reminder, a carry had to of equity for we as with net investment And the just place, to obviously, And the benefits the net the not we a we a some now, lower larger - tranche matured, got significant in in presence that, have

CapEx this for year? offer you Did guidance

that going did - - but considerably is, seen be in a over of from do our to business to pandemic. year. projects opportunities We've from hampered I people our part. very expect couple up intentional the of value-creating past in just Eric minute, going shareholder that prior years on the can were we of here And we not, facilities but drive it's jump that opportunities. number a at seen to emerging good our are be And are have we getting because I'm to on part in it of

that, And out opportunities. identifying we're good investment so, as of more we're coming

couldn't we get in With COVID, do Yes. the plants work. to the people just

a We automation year course this year, have this we're return of shareholder as lot and year, for take of that have later to opportunities well. of going this on that'll it of advantage some

being X% Yes, excluding could that put upfitting I of the closer the up and to include of if project. it gauge And would would to then in close we I Arizona you of sales brackets X.X% get X%, sales. Arizona, in range.

It’s We've our normal years. of target. just underspent couple the last

understood. Yep,

significant Can related you the portion, interest Alluxa. sounds closed It all was to you but rates. versus your on us sense that a through of bit goodwill acquisition? give performing not little a Alluxa's went like when a expectations impairment You how higher

the projections I is kind very compete discussing it's - as, cash flow - at single-digit double-digit our strategically applications. company growth highest as in what excuse take position. optical for as Well to an of reduce out, still we demanding high most company the with when we goodwill the just indicated on low me, to did outstanding And going the end in - as in outlook in They around remarks, mentioned still the EnPro, for prepared our me, do future. my low excuse low is we - as company. but mean, I filters. it impairment, foreseeable They consistent single-digit the It's double-digit a

on business itself. So, the yes, my those are comments

strong. very a came It's in but bit is the we some overall accelerating slowed and we're business business. in The great little go behind what got COVID with Basically, future. again we work COVID. like down, a

Thanks, Appreciate commentary. the everyone.

end the reached over We’ve comments. or Thank session. to further floor to turn question-and-answer of any the closing like for I'd our you. back James

you time day. your rest terrific today. of your for Have a Thank much very

webcast. today's Thank you. and That conclude does teleconference

have a and your wonderful you You this may thank time disconnect day. your today. line for at participation We