Enpro Inc.

Hello, and welcome to the Enpro Industries Q1 2021 Earnings Conference Call and Webcast. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Milt Childress, Executive Vice President and Chief Financial Officer. Milt, please go ahead.

Good morning and welcome to InPro's quarterly earnings conference call. I'll remind you that our call is also being webcast at InProIndustries.com where you can find the presentation that accompanies the call. With me today is Marvin Riley, our CEO. Before we begin our discussion, a friendly reminder that we will be making statements on this call that are not historical facts and are considered forward looking in nature. These statements involve a number of risks and uncertainties, including impacts from the COVID-19 pandemic and related governmental responses and their impact on the general economy, as well as other risks and uncertainties that are described in our filings with the SEC, including our most recent Form 10-K. We do not undertake to update any of these forward-looking statements. Also, during the call, we will reference a number of non-GAAP financial measures. Tables reconciling these measures to the comparable GAAP measures are included in the appendix to the presentation materials. I'll also note that during this call, we will be providing full-year guidance, which excludes changes in the number of shares outstanding, impacts from future acquisitions, dispositions, and related transaction costs, restructuring costs, incremental impacts of tariffs and trade tensions on market demand, and costs subsequent to the end of the first quarter The impact of foreign exchange rate changes subsequent to the end of the first quarter impacts from further spread of COVID-19 and environmental and litigation charges. I also want to remind you that as a result of the sale of Fairbanks-Morris in January 2020, the former power system segment is accounted for as discontinued operations in our financial statements for the prior year period. Unless otherwise noted, all our comments today will refer to continuing operations. As previously announced, INPRO will host a virtual investor day on Thursday, May 27th. Members of INPRO's executive management team, including Marvin and me, will provide an overview and update of the company's long-term vision, growth strategy, business segments, as well as operational and financial objectives. Registration information for this virtual event is available on the company's investor relations website. And now I'll turn the call over to Marvin.

Thanks, Milt, and good morning, everyone. I really appreciate you joining us today and hope you and your families are safe and healthy. As we begin to turn the corner on the pandemic in the United States due to the vaccine rollout, we're mindful that everyone is not yet vaccinated and the recovery is uneven throughout the rest of the world. There are still many places in the world like India where the virus is spreading rapidly, so we must remain vigilant regarding maintaining safety protocols, operating processes, and new ways of working that protects our employees and fellow citizens. I am extremely proud of our team members who continue to exemplify NPRO's values of safety, excellence, and respect for all people while delivering quality products and services to our customers. Now moving on to our first quarter highlights. Overall, we experienced a faster than expected recovery in most of our end markets. We delivered extraordinary results driven by improved demand, the benefits of increased exposure to higher margin and faster growth businesses, which resulted from portfolio actions taken last year and cost savings initiatives driven by our capability center. Despite several countries returning to lockdown, February's severe weather in the southwestern U.S. and challenges with global logistics and ocean transport We were still able to fortify our key materials while holding supply chain disruptions to a minimum. In our response to COVID-19, we enhanced the collaboration between supply chain, manufacturing, and our commercial team. This enhanced collaboration really helped us to respond quickly with price increases to offset higher material costs and increase customer engagement where necessary. We have fundamentally transformed the way we work, and the benefits are showing up in our results. Our order trends are extremely strong. As a point of reference, March 2021 was the highest order intake month in the past three years. We continue to be encouraged by what we're seeing and hearing from our customers, particularly in the semiconductor, food and pharma, petrochemical, automotive, and heavy-duty truck markets. In the first quarter, sales were down modestly on a year-over-year basis as a result of the 2020 divestitures. Despite the divestitures, orders were up over 10%. On an organic basis, our sales were up 5.5%. Our first quarter adjusted EBITDA of $52 million increased 28% year-over-year, and adjusted EBITDA margin expanded 420 basis points to 18.6%. The strong performance was the result of actions taken to reshape our portfolio, improving end market trends and cost mitigation initiatives. All three business segments contributed to our adjusted EBITDA growth. A key contributor to our success is our clear and consistent strategy. We're focused on four areas. First, focusing on niche, high-margin material science-related businesses with strong cash flow. Second, investing in faster growth markets, including technology, while maintaining a strong aftermarket exposure. Third, leveraging the NPRO Capability Center to increase margins and cash flow return on investment. And fourth, maximizing long-term shareholder returns through a commitment to sustainability and disciplined capital allocation. While there were no transactions announced this quarter, the portfolio optimization work continues, and the corporate development team is hard at work vetting a robust pipeline of opportunities that fit our portfolio strategy. As you know, we executed a number of successful portfolio shaping actions over the last year and a half that have moved us into a higher growth and less cyclical business model. In February, in connection with the portfolio reshaping actions, We announced our resegmentation into three reporting segments, ceiling technologies, advanced surface technologies, and engineered materials. The resegmentation better aligns our technical and operational expertise, enables improvements in measuring and managing performance, facilitates improved decision-making, and enhances transparency for investors. All three segments performed exceptionally well this quarter. I would like to take a moment to highlight our new segment, Advanced Surface Technologies, given the level of our recent investments there. The Advanced Surface Technologies segment, which includes Aluxa, LeanTech, and the Technetic Semiconductor businesses, posted 49% revenue growth, 137% adjusted EBITDA growth, and adjusted EBITDA margin expansion of over 1,000 basis points, to 31.6%. These results were driven by a full quarter's contribution of a LUXA accelerating revenue growth at LeanTech and solid performance of Technetics Semiconductor. It's a very, very strong quarter. Our cleaning, coatings, and refurbishment businesses consisting of LeanTech and the Technetics Semiconductor business have grown significantly year over year based on increasing demand for sub 10 nanometer semiconductor wafers. We remain very optimistic about the lean tech business and despite the impact of COVID-19, its sales and earnings remain on track with our expectations at the time of the transaction. We continue to add capacity in this business to meet increased demand. The build out of the new lean tech facility in Taiwan for expansion of five and three nanometer applications is expected to be qualified by the third quarter of the year and will support continued growth. We are also making great progress with customer acquisitions and qualifications at the U.S. site in Milpitas, California. Aluxa had a great start to the year with year-over-year sales growth across all of its markets during the first quarter. We anticipate continued strong demand for the remainder of the year. Our integration process is going very smoothly by leveraging our collective thin-film technology IP and the Enpro Capability Center while being careful not to disrupt Aluxa's day-to-day business. We've made significant progress over the last two years, improving our financial results, reshaping our portfolio, and positioning the company for long-term profitable growth. With the successful acquisitions of LeanTech and the Aseptic Group, and more recently the acquisition of Aluxa, we have an excellent foundation to drive organic growth. We continue to maintain a disciplined approach to capital allocation and relentless focus on cash generation. We have a healthy balance sheet and an untapped revolver. Therefore, we are well positioned with the financial flexibility to make strategic investments in our existing businesses, as well as execute additional acquisitions that meet our M&A criteria. Before handing the call over to Milt for a more detailed overview of our financial results, I will share some additional color on NPRO's sustainability initiatives. We'll be releasing our 2021 sustainability report in a few weeks, and I'm excited to give you a preview of the key highlights today. In the area of employee development and safety, we've created an environment where all employees can flourish in a culture where financial performance and human development are equal and inextricably linked. We strive to promote a safe environment, both physically and mentally. We're the only public company recognized by EHS today as America's safest company three separate times, and 2020 was the safest year in the history of our company as measured by medical treatment case rates. In the area of diversity and inclusion, we are deliberately diverse, which underscores our belief that a diverse workforce is critical to our success. The percentage of female promotions in the U.S. has increased 10% since January 2019. Female and minority representation among senior leadership has increased 7% to 37%. since January 2020, with the goal of achieving 40% by 2025. In the area of supporting our communities, we announced in December our $1 million funding of the NPRO Foundation focused on advancing education, equality, diversity, and the preservation of human dignity. Regarding environmental responsibility and sustainability, We're committed to diligently exploring all opportunities to reduce our energy usage and to minimizing greenhouse gas emissions wherever feasible. We've also gone so far as divesting certain carbon-intensive lines of business, such as Fairbanks-Morse, and selectively disengaging with market sectors that are highly carbon-intensive. Approximately 7% of our revenue comes from the oil and gas industry, and we anticipate this percentage to decrease over time as our strategic transformation continues. Many of our products, such as gaskets and seals, protect the environment by helping to contain and prevent the release of harmful substances. At ENPRO, we're truly committed to sustainability as it is embedded throughout our entire global organization. We're confident that our sustainability initiatives will be a key contributor to our continued success as a company. Now, I will hand the call over to Milt for a deeper dive into our financial results for the quarter. Milt? Thanks, Marvin.