EnPro Industries (NPO) 31 Oct 232023 Q3 Earnings call transcript

Greetings. Welcome to the EnPro Third Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I would like to hand the call over to James Gentile, Vice President, Investor Relations. Thank you.

You may begin.

morning, good and Daryl, everyone. Thanks, Third Welcome Earnings Call. XXXX to EnPro's Conference Quarter our remind being find presentation call. will you call you the this accompanies I that that can where is enproindustries.com, webcast at Eric me Childress, Milt President Vaillancourt, With Vice is our and Officer; Executive Officer. Chief Financial Chief President and and Executive today

now to changes We do obligation Chief and third year from that the historical Form subsequent a the in uncertainties reference which discussing dispositions, this we guidance, filings forward-looking uncertainties, our included are the involve to rate excludes note, comparable call, XX-K. Also Eric? reminder the inflation, update XXXX over to pleasure measures are including During will of nature. not a quarter. incremental be on call be financial these of Vaillancourt, the forward-looking measures a statements. It statements any today's undertake making recent call, in described to Also, measures. impacts our number the non-GAAP with are President during well that non-GAAP this impacts the historical turn the facts presentation appendix that unforeseen These from and as those not and outstanding, we'll of end to shares in number considered our friendly future we Tables SEC, materials. will interest exchange impacts is reconciling acquisitions, and and risks as call the number full my Eric foreign statements of including these to Executive Officer. risks of most in our changes GAAP

and James, everyone. good Thanks, morning,

results. Sealing adjusted sequential hand for performance in these EBITDA of the headwinds, our with AST, the semiconductor weakness started of the delivered then progress, saw overview our Technologies quarter, resulting and company macro for detailed analysis to third a XX.X% Milt XX% results year-over-year in We remained the from quarterly Despite industry. in over third and but quarter, call robust we margins will our and the strategic more get a an of I'll continued slowdown year-to-date.

during will Our downturn to resilient which us benefits the effectively continue semiconductor healthy and of ability macroeconomic business navigating to balanced our the enable model portfolio cycles. maintain reflects margins industry through

are proactively customers costs controlling We carefully with mitigate while to working volatility.

will opportunities As upon that productivity so, our we multiple foundation. do and we invest to were continue build growth strong in

priorities value We starts quarter spending equipment growth and that slowdown key capital prior continued sales third will year. execution semiconductor below long-term strategy the confident are drove wafer us creation. The of well and the for our and current position in the

when to spending strong in quarter, intensified softness feedback While and inventories. overall Also, saw anticipate we third the right compared equipment build semiconductor their observed to mix capital pockets segment. Based especially forecast, recent results customers last of market in plan quarter, year's efforts shifted this in to the during unfavorable, XXXX. growth destock we AST was very into on as we customer

growth to We forces, without to in as to our the Internet widely position AI expected decade, these solid advance Things. and levels taking including where for and of investments recover. The macro sacrificing actions by is portfolio appropriate us upcoming cost are driven market markets semiconductor maintain the margin double

even required chips, more enhanced process increasing. manufacture is of architectures efficiencies, More With sophisticated complexity, tools steps. complete become As generation new increasingly are life and management and of chip to evolve, complexity critical contamination to critical. yield control are steps needed each in-chamber these cycle processing tools

average growth above to expand To to growth we maintain differentiation in business Above regions our of semiconductor the position participate expected. are meet opportunity, our the sits and in are businesses to is and we trends, investing in Our and well where these growth. squarely middle positioned industry's as this expected. technological

customers We profitable customers to sustainable, focus, partner our customer leading-edge our with the chips. This are our supporting forward, growth. strategic with production paired for of positions drive excited long-term EnPro industry the -- to including with deep relationship,

hand our Now financial to the Milt more detail. over in discuss call results to I'll

million Reported Thanks, quarter $XXX.X offset XX.X% Adjusted slightly per higher segment by in decreased the Lower of $X.XX were third expenses. in compared share a of XX.X% AST earnings from XX%. due adjusted in last in price. Adjusted a $X.X Corporate offset markets personnel-related of million professional increased EBITDA positive costs along the period. EBITDA quarter period offset expenses third Increased and prior while margins year primarily in incentive reduction sales $X.X decline a third primary around year. down in the were The sales fees of XX% of with in to million other results in driver largely by Eric. contribution decreased year still to million from were healthy the interest of were weakness markets, prior decline, the the income. partially over semiconductor part diluted the is growth $XX.X year-over-year. by quarter compensation

and commercial segment pharma, a nuclear by OEM and commercial food vehicle aftermarket, particularly and industrial, pricing. of in these demand X.X% weakness was $XXX.X Growth by and China. general Technologies with markets in along sales, strong sales from a increased performance. mostly positive discussion offset in to of Moving a million in some in Europe Sealing driven vehicle in drop impact destocking organically,

aftermarket under expanded increased the For basis in $XX segment referenced. million costs cost segment in nuclear to quarter, driven margin in Adjusted labor EBITDA of XX.X% controls of certain rising XX.X% just adjusted by just XXX points commercial pricing continued year. EBITDA strength impact prior were Year-to-date, the Favorable actions and third up the mix, XX.X%. margins EBITDA XX%. from markets segment vehicle sales, softness adjusted and more and than offset positive and

favorable mix strategic benefit pricing, In operational and continue to our to ongoing improvements addition and results.

to Technologies. Turning Advanced Surface now

semiconductor markets slowdown related inventory and Third quarter current adjustments. in decreased sales XX%, of the driven $XX.X million customer by

$XX segment mix. adjusted the For unfavorable decline little in XX% to by the driven and volume over quarter, EBITDA a million, decreased

Third Arizona coating domestic in to of quarter impacted expansion. including by capabilities. A also semiconductor cleaning our our brief lesser and support results degree the growth, participation on update our investments expand to U.S. facility a were to the in build-out advanced

continue Arizona. to a stage we the on purchased basis, upfit building that in We

we -- an are CHIPS as transform facility mentioned to we on into As support semiconductor Act previously, advanced basis. building seeking help an us expedited this

this fabs use to new support advanced expect Arizona. of node at We facility constructed the production to being in semiconductors

exceeded adjusted segment semiconductor margin in volume. market For impact XX.X% reflects the and unfavorable year's the margins the segment adjusted lower of quarter, decline third with year-to-date this of deleveraging mix EBITDA Even XX%. EBITDA

excited segment against trajectory of multiyear to a in AST backdrop widely coming of over we doubling our discussed, continue industry about decade. Eric be the the the the As expected

cash flow. and Turning to the balance sheet

financial were facility. and and to X.Xx. nearly growth availability nearly long-term We the million cash flexibility strategic have full net We execute our our $XXX ended Cash initiatives. quarter equivalents revolving with on we ample ratio of leverage under a had credit million $XXX

reduced third by the around bringing million debt quarter, During $XXX long-term to our debt approximately $XXX we total term million.

free We continue strong to flow. generate cash

$XXX a $XXX the up of For from ago. XXXX, the period year first X free cash million, same million in flow months exceeded

paid conversion in Our spending. cash organization throughout lower cycle focus the the capital cash taxes higher than the offset on period more and

the paid quarterly months $XX.X $X.XX third year, million. for payments per quarter, totaled first a During we dividend And share dividend. the of the X

XXXX guidance. our now Moving to

results, for share. In to parts year. your In per $XXX EBITDA, expect certain the EBITDA mentioned be quarter. Thanks the diluted adjusted orders call based lower and flat adjusted to we higher of given share revenue expected results relatively the segment. fourth continue returning lower time to million to today, the continued towards are We Eric. last back strong Adjusted sequentially Sealing, guidance AST, to and $XXX I'll on the demand per for compared our earlier adjusted current million of slowing certain in earnings of markets and expect typical production to remain to in $X.XX previous fourth and now seasonality in but earnings and diluted sequentially for schedules, $X.XX we turn quarter end expect in ranges

Thank you, Milt.

very and execute energized colleagues Our continue to are X,XXX win. well EnPro across to

no Our a navigated of in exceptionally and market past variety teams today cycles different. have well is for the

enable products day, Sealing differentiated performance our remain and a growing opportunities. semiconductor markets. The variety segment solutions highly our that strategic day In for profitability engineered year, several our sustainable Our long-term for continue challenging invest of end deliver customers are teams and remarkable, safe, across And been after reliable customers. to best-in-class the AST, unchanged. financial while critical has plans a solutions and growth we delivering producing in deserve ecosystem we and for of operations despite praise a part global

us and make today. investments we'll EnPro. and we are focused throughout growth you capitalizing appreciate for AST. Thank joining trajectory have intact, interest long-term we your on to continue made in Our remains We the on

to open I'll questions. Now line the

from come [Operator line Instructions] questions with KeyBanc the Hammond of Capital Our Jeff Markets. first

maybe shape the of of a sense So thinking what XQ? how into recovery just about on better AST, I inflection. the you're looks in then timing And maybe just like guess,

I think you 'XX. into said weakness

pushing a little like out So seems maybe bit. that's it

go me let Eric, and jump Jeff, and Yes. this forth one. in there. back just I'll on

sequential out indicated orders semiconductor QX. And in third the out current there expecting for year quarter, saw well you've been you the as markets improvement As us, but The additional remains as heard pushing I in in inventory prepared pushing my and outlook it we know, other the in And on system. the based schedules, has just on in uncertain. we're industry, remarks, not from some some just companies progressed. based as has in

some We out do then going right. fourth quarter we're year uncertain this the and So X. to It's need progression and see. to are quarter, improvement what We'll think see for or a the brings. to expecting the things in be we'll pushed

uncertain, we just they inventory has I anticipated. think and Jeff. word longer been thought talk key we the taking destocking than the customers, When longer is to than

look still focus decade, in seem right to just happen North positioned the the well to haven't changed. move little at long-term looking prospects and doubling still American to the risk things onshoring at at same the next leading-edge industry, the you the nodes. So to going continue the between But over When time, we're and extremely bit. the what's a we're

Our and performing very we're overall businesses future. about well, excited are now still the

that recovery. The concern are recently are to us for sure the ready change. switched, make has customers things when ready Our we're with we working

there or as we've quickly so here that though thing costs we're And adjusted sure that this grow to positioned rebounds. making even

can ramp of And so up. now that's how with customers lot a is spending time where quickly you

kind that Or guess Okay. on real last takes? on even down then demand XQ. in as on resiliency And update some food, maybe general And just expand pharma maybe this this margin just think that destocking? industrial, get Sealing, step I just do you is how Sealing, And seasonal is in helpful. Very us then weakness. of you long destock

think we than destocking, continue pharma and into that. food but The will first. that much have don't visibility 'XX, more take I'll we

you margins, If at them tight. expect There's things look our I hold a few happening. pretty to

the look the you ton FTR, miles flat freight always leading when according a projection. at of at as indicator So are I look to relatively miles, which ton latest

this a point think tenths a couple something I tenths down year year a so that. less point call a or and few next X, or up it's minus like flat. But of than of I'll plus that few

look when And aftermarket you business is that, ]. it so and well performed [ have at at very STEMCO our

look is it Our margin be our improves trailer also or down but digits, and OEM when at to you mix that, projected trucking business, our profile. a double builds

and, in increases to increase addition in and chain. that, is supply get point that price the do. Lastly, my balance say, price chain as always surgical. And let's We'll we starting really then some Sealing, we're strategic in now from more to X see some supply down have will the view in be cost we'll of January

in well. of have our up back. So there we're prices price We some don't to so margin that give and as picking intend dropped, commodities some most

Sealing. margins our So in expect overall, robust I to remain

Our come with the Steve Sidoti from line & of Ferazani next Company. questions

comments a I more, that all to you pretty the morning. detail cuts. the little It some has noted of at sounded you'd appreciate extended. which some year. and ones weakness made now about know like wanted declining cost further I the you call margins, some look bit I about this you substantial on are ask also beginning AST took

comes expectation can cuts meaningful So is the knowing the that we the your recovery question is, -- there you timing uncertain, outlook And back along are so we're AST the bottom any are now it of bumping bumping that make is cost faster. is the of margins? maybe along

just the had deleveraging. we you comment some I'll is Steve, margins of at is be as most in even have saw we actions, prepared use wanted we Well, when lose to uptick. certain took to customers we of the Eric -- year-over-year volume And because that comes. And the moved uptick need quarter have the be the certainty third a when from a you it need as in AST that with we they're surgical you for really to -- environment, when kind what said, we drop look we have for the a still but be word to prepared additional though prepared conversations

And constructive. so those conversations very are

some where now in also, margins for profitable the we've is have really need had areas a as about in the drops And lines. certain very more the we've what we it's unfavorable we've severe volume of result So had business some product year talked strong volume. been of -- a mix, throughout in as we've had

big the memory And some we've before. drop tied in of to mentioned as that is

will about the we on That expect on need volume the as to we're we've environment, uncertain as our And And is not term downside. start long in to on the to we when The rebound. the -- on some uptick see do customers, upside really based we that. leverage and long really we the we're doing X our term the change. long to of will back, that -- focus will just term. And will see delevered this is focus excitement is in years feel is and what come of much the going out. -- XXXX conversations So with continue but

of memory life And some recently. well showing bit little to started talk about as customers a have

So be if actually happens. exciting that would that

then And flipping a you and addressed bit. Great. little this

more you Is that offset is that see some -- than to this of where assume also volume fair giving bit margins little Sealing because deleveraging look I'm by revenue that price, your by assuming a the expected year-over-year offset would On getting have to at I way down but more uptick? price. you than it's

still more, Our us. volume I'll what but levels, robust traditional is off, call our return backlog to for

say we're And think in strong have able have our do pretty is historically. still Sealing I to captured price. still to more we've so to efficiencies. fair -- able And overall, operational But volume it's

about areas, heavy that trends, up, that obviously, if volume truck, be get then but come in right? to you're truck And Okay. think right? in margin should you based typically more pricing, as starting your on weakness commercial lower see would So -- margin, OEM, mix So right? holds XXXX you some be long back entering you better substantially and as doesn't even other still get volume

as correct. absolutely results see this could we Yes, that's And it in quarter's well.

Steve, know I'll toward remind more much heavily weighted as And is than commercial you, on just know, it you our is business OEM. aftermarket you that vehicle

some kind COVID. the stock. thought industrial exited Yes. like just a safety just of a volume as are core. another the It seems supply the just situation And that chain normal we cost on And result of declines of that's as removing the distributors of

growth growth in future. for some forward, -- look are mix you opportunities the for definitely as So there and

very Great. year, debt -- one your think thinking shift cash How at receivables you cash point? in a debt get last what priorities? reduction about good Any this allocation in flow is obviously, strong the collection. Meaningful this capital are down? net And do strong way quarter, just growing, on you one about

No shift currently.

Arizona the in whether criteria. the a growth, selective meet on our We investment or facility and it's organic investing investments new as that have continue focus to our in making such strategic business for first acquisitions we're financial in

but strong We're is continually making the the And actually quarter, the sake have opportunities. quite look fit going the word right not and fit and in us. that trying we we We to of our where there, acquisitions, look advance are mentioned and The path just lot Sealing acquisitions interested we're a growth organic AST, we've opportunities. and at than very us think do use for we -- find We're looking pipeline segment to as good, a of strategy I'll in continue last at ahead. picky. spending I for we're opportunities forward with with more time at can

Ian the with of from Our Oppenheimer. Zaffino next line Instructions] questions [Operator come

couple of Just questions. a clarification

On the anticipated see might any food we you should know destocking, your you markets Is other any and of that pharma. I destocking that other industries or Sealings expect? mentioned like there end across

And think the -- normal No, and one to demand balance. since is Sealing? supply in seasonal right In COVID, chain cycles. now, the do chain due only I think back I we think elevated supply the is had different we're constraints. I to backlog do thing

And think part so I cleared up. that is

more stock, to instead safety And out stock. so talked levels taking of inventory think returned earlier James have I -- about safety normal and distributors our extra increased when

So overall, destocking don't are see food than things balance. But I any in other pharma. think I more and

us can were actions? of Okay. then give actions pricing the maybe an volume And you versus idea what

at to look you segment, the Ian? referring Sealing, When the specifically Sealing you're

Exactly, yes.

seasonal Yes. the be pricing or certain industrial to in declines at aerospace just going it's We and And of then It's to. growth the the mostly, look typical cycle Eric volume had seasonal and China. where in slowdown are like growth. weighted on in of kind year-over-year referred nuclear we had basis if because you than of some and in patterns a organic volume volume more Europe heavily markets and toward growth, general then that some we space.

different depending market. So on it's -- are the patterns the

price. So there for are was heavily toward look growth pockets at it the year-over-year overall, of you more growth the segment, but certainly when weighted

final then And just Okay. one. a

maybe you On memory? aftermarket strong the of mentioned idea the then how relatively also give I memory what's you business mix And versus did versus know too. Can weakness. been AST. an at OE us

past, first, products or and of year-to-year in a meaning driven the But rough are need recurring our question AST, be that this revenues solutions last refurbished or by the production bit. where chips, is is cleaned the recoded. because roughly semiconductor components we've little it Yes. quarter-to-quarter, In we're chamber X/X AST, in driven I of recurring, and changes by think to business said

what and that's new mean recurring. And by equipment we to the to so more sold growth. the that's then foundries X/X the remaining driven And by support is roughly being IDMs

the And lot we're where our so are yes, a advanced of in given we part recurring of that, nodes. positioned, business, on

inventory alluded year-over-year part the business been weakness situation seeing well. that equipment has some that there. side the given we more The so We're of of And is performing the our growth on to earlier. business,

Our Markets. KeyBanc of Jeff the next Capital line from Hammond question with comes

you but follow-ups. kind couple you're you the Just there. breadth think in of just guys have current roll a you the seeing of kind from the some One, But of mentioned resent AST just update and and past as customers, of what to about customers within are opportunities CHIPS think combination of qualitatively, out wins, give Act I of with an and NxEdge this you kind LeanTeq new kind recovery. as in kind of

I won't be about It pipeline. myself bit spoke our I this, a grow. quantify exciting it, pipeline little few more in I and -- of probably got to more but integrated. continues But trouble continues be say continues a quarters to will I'll to vertically -- and and our our say about it

what about customers can opportunities you those when integration play in, So excited value the of the look coming are our at recognizing they're and be, opportunities. new vertical our

it pipeline there but it's very monthly. want opportunities. to it, and our quantify don't heavily So increases vertical is I substantial, to weighted integration

to of and and grow, are and continues win size rate. pipeline our we to opportunities holding our So the our continues number grow

of having Okay. on on kind but we any CFO update And search? love around, -- update then any Milt, just the you

that on I'll question. defer to Eric

going the as Milt for valuable We're and active we're disciplined somebody and remain acquisition to perform very equally search the being as in as much to find to well as Milt our like company. strategy. be very We that's selective looking --

isn't we're there excited we it, the be to continue So in any update. about immediate and process, but

now closing We the have over Gentile comments. like of end session. would to floor reached turn for the our I question-and-answer back James to

you interest. Have your day, everyone. Thank for a great

today's conclude We does This your participation. teleconference. appreciate

time. this the lines may day. You Enjoy disconnect of at rest your your