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spk00: Hello, and welcome to the MPRO first quarter 2022 earnings call and webcast. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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.
spk05: Thank you, Kevin, and good morning, everyone. Welcome to Enpro's first quarter 2022 earnings conference call. I will remind you that our call is being webcast at EnproIndustries.com, where you can find the presentation that accompanies this call. With me today is Eric Valancourt, our President and Chief Executive Officer, and Milt Childress, Executive Vice President and Chief Financial Officer. Before we begin today's discussion, a friendly reminder that we will be making forward-looking statements on this call that are not historical facts and that are considered forward-looking in nature. These statements involve a number of risks and uncertainties, including impacts from the 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. Also during this 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. We do not undertake any obligation to update these forward-looking statements. Please note that during this call, we will be providing full-year guidance which excludes changes in the numbers of shares outstanding, impacts from future acquisitions, dispositions, and related transaction costs restructuring costs, incremental impacts from inflation, geopolitical variables, including the conflict in Ukraine, sanctions and trade tensions on market demand, and costs subsequent to the first quarter. The impact of foreign exchange rate changes subsequent to the end of the first quarter increases in interest rates differing from assumptions outlined in guidance, impacts from further spread of COVID-19 or other variants, and environmental and litigation charges. it is my pleasure to turn the call over to Eric. Eric?
spk07: Thanks, James, and good morning, everyone. Thank you for joining us today as we provide a strategic and financial update for our first quarter of 2022. 2022 marks our 20th anniversary as an independent public company. Over the last two decades, thanks to the hard work and dedication of the EnPro team, we have built a strong foundation for sustainable growth and value creation. As we charge forward, Our enhanced cash flow models will enable us to continue to drive organic growth investments, expand in our key end markets, and selectively pursue acquisitions that fit our strategic and financial criteria. I am proud of how far we have come, and I have never been more excited for the future of EnPro and all of our stakeholders. Now on to our first quarter highlights. Our team's agile execution produced strong results in our first quarter. Despite significant inflationary pressures, geographical uncertainty, and resulting global macroeconomic headwinds. I would like to thank our entire team for their hard work, resilience, and flexibility under challenging circumstances as we continue to deliver to our customers and all of our stakeholders. I am particularly excited about the opportunities arising from our acquisition of NextEdge, as we are already realizing the significant benefits of combining the commercial and technological advantages across our advanced surface technologies platform. Our teams are coordinating closely, and the combination is demonstrating solid strategic and cultural fit. For the quarter, we delivered strong top-line results with organic sales growth of 13.5%, with demand for our products and services largely broad-based. Amid a challenging environment, our supply chain, operations, and commercials team continue to collaborate to secure supply, improve processes, and pursue pricing actions to offset rising material costs freight, and labor costs across the company. The inflationary environment also continues to present headwinds, particularly on our heavy-duty truck market in the ceiling technology segment and on our automotive exposed markets in the engineered materials segment. We expect these conditions to persist through at least year-end, and we continue to explore opportunities to mitigate these headwinds with pricing, sourcing, and continuous operational improvement. Our portfolio optimization strategy has elevated the profitability of the entire enterprise and has empowered our colleagues to execute on our value creation objectives with purpose and close collaboration. Our first quarter adjusted EBITDA of $67.9 million increased 30.6% year-over-year, largely due to contributions from NextEdge in its first full reporting quarter, and adjusted EBITDA margin expanded 210 basis points to 20.7%. I would like to point out that this is the first time in our 20-year history that our quarterly adjusted EBITDA margins exceeded 20%, which marks a tremendous milestone for our company. Just a short time ago, in 2019, we finished the year at 14% adjusted EBITDA margin. This achievement is a testament to the resilience of our operating model and the steps we have taken to create a stronger, more focused, profitable portfolio. Our 2022 sales growth and adjusted EBITDA guidance that we are reiterating today implies adjusted EBITDA margins north of 20% for the full year. From a strategic perspective, we remain focused on niche high margin material science related businesses with strong cashflow and robust aftermarket exposure. We are developing market leading leadership positions in higher growth markets that are supported by secular tailwinds as we lean into our most profitable opportunities. We continue to leverage our time-tested process improvement initiatives to preserve and increase margins in cash flow return on investment, while maximizing long-term shareholder returns through our commitment to sustainability and diversity, disciplined capital allocation, and transparency. It is now my pleasure to hand the call over to Milt for a deeper dive into our first quarter results and outlook for the balance of 2022.
spk01: Thanks, Eric, and good morning, everyone. As Eric stated, we had another good quarter. even as aggressive inflationary forces persisted and geopolitical issues in Ukraine drove macroeconomic uncertainty and supply chain variability globally. Reported sales of $328.7 million in the first quarter increased 17.7% year over year, and as Eric mentioned, 13.5% organically. Positive momentum in the semiconductor, general industrial, heavy duty truck, aerospace, food and pharma, oil and gas, and petrochemical markets, as well as the first quarter contribution from NextEdge drove sales growth, partially offset by the reduction in sales due to last year's divestitures, as well as a continued lag in our automotive market residing in the engineered materials segment due to supply chain related customer delays. Adjusted EBITDA of $67.9 million increased 30.6% over the prior year period, driven primarily by the addition of NextEdge, net of the impact of divestitures completed in 2021. Operating leverage on organic sales growth and strategic pricing initiatives in the quarter were largely offset by increasing raw material costs, rising labor, and freight expenses. Despite these inflationary headwinds, we delivered adjusted EBITDA margin of 20.7%, an increase of approximately 210 basis points compared to the first quarter of 2021. Corporate expenses of $13.4 million in the first quarter of 2022 increased from $11.6 million a year ago, driven primarily by costs incurred from recent acquisition and divestiture activities, as well as corporate restructuring charges partially offset by lower incentive compensation accruals. Adjusted diluted earnings per share of $1.83 increased 33.6% compared to the prior year period, driven by the acquisition of NextEdge and solid demand year over year, partially offset by higher interest expense and inflationary forces experienced largely in our heavy-duty truck and automotive markets where price initiatives lagged. Moving to a discussion of segment performance, ceiling technology sales of $153.6 million increased 4.8%, driven by strong demand in heavy-duty truck, food and pharma, aerospace, and general industrial markets, partially offset by the impact of the divestiture of the polymer components business completed last year. Excluding the impact of divested businesses and foreign exchange translation, Organic sales increased 14.1%. For the first quarter, adjusted segment EBITDA of $33.5 million was essentially flat compared to the prior year period. Adjusted segment EBITDA margin contracted 130 basis points to 21.8%, due primarily to increased inflationary pressures on raw materials and higher freight and labor costs, particularly in our heavy-duty truck business. These cost pressures were partially offset by operating leverage from strong volume and price increases. Excluding the impact of divestitures and foreign exchange translation, adjusted segment EBIT increased 6.2% compared to the prior year period. Turning now to advanced surface technologies. First quarter sales of $116.7 million more than doubled, driven by contributions from NextEdge and continued strong demand in the semiconductor market. Excluding the impact of the NextEdge acquisition and foreign exchange translation, sales increased 19.6% versus the prior year period. For the first quarter, adjusted segment EBITDA more than doubled to $34.9 million, driven primarily by the NextEdge acquisition and strong organic sales growth. Excluding the impact of NextEdge and foreign exchange translation, adjusted segment EBITDA decreased 3.5% due to increased operating expenses supporting the development of advanced optical filter applications and growth investments in semiconductor supporting capacity expansion in both the United States and Taiwan. In addition, results were impacted by product mix and wage increases ahead of price adjustments. Qualification work with various large semiconductor customers focused primarily on advanced node applications is ongoing, and we are optimistic that we will continue to see strong demand in our semiconductor-related businesses into the foreseeable future. We are very encouraged by the outlook for advanced surface technologies. In engineered materials, first quarter sales of $59 million decreased 26.6% compared to the prior year, driven primarily by the CPI divestiture and industry-wide supply chain-related constraints affecting production in the automotive market, partially offset by stronger demand in general industrial, aerospace, and oil and gas markets. Organic sales for the quarter increased 6.5%. First quarter adjusted segment EBITDA decreased 27% over the prior year period, driven primarily by the CPI divestiture. Excluding the impact of the divestiture and foreign exchange translation, adjusted EBITDA decreased 4% compared to the prior year period, reflecting raw material costs, wage and freight headwinds, and excess of pricing initiatives, particularly in the automotive market. Turning to our balance sheet and statement of cash flow, we finished the quarter with $1.078 billion in total debt and cash of $293 million. In the first quarter, we repatriated $43 million in cash from foreign jurisdictions. With further tax-efficient repatriation efforts underway, we expect to bring an additional $125 million onshore by year end. At March 31, we had $259 million available for borrowing under our revolving credit facility. Our balance sheet remains healthy and we have ample financial flexibility to execute on our strategic growth initiatives. Free cash flow for the first three months of 2022 was $27 million, up from $14 million in the prior year, driven primarily by higher operating profits, improvement in working capital management, and lower capital expenditures. We plan to use excess free cash flow to fund the growth investments and reduce debt. During the first quarter, we paid a $0.28 per share quarterly dividend, and for the first three months of the year, dividend payments totaled $5.9 million, representing a 3.5% increase versus the prior year. Turning to guidance, we are reiterating our expectation for low double-digit revenue growth for 2022 over reported 2021 sales of $1.14 billion, and we continue to expect adjusted EBITDA in the range of $263 million to $275 million, implying adjusted EBITDA margins north of 20% for the full year. Based on our current outlook, we expect adjusted EBITDA to be weighted fairly evenly between the first half and the second half of this year. We are modestly revising our adjusted diluted earnings per share guidance to a range of $6.60 to $7.15. to reflect increased projected interest costs above our prior assumptions due to the expectation for acceleration of interest rates as the year progresses. Underlying demand and order trends remain strong into the second quarter, and we will remain agile with pricing, sourcing, and operational improvements to mitigate impacts from the currently dynamic inflationary and macroeconomic environment. Now I'll turn the call back to Eric for an update on our ESG initiatives, followed by some closing comments.
spk07: Thank you, Mel. We are committed to strong environmental, social, and governance practices that support our objectives to create a more sustainable future for our communities and foster a culture that embraces diversity, champions safety, and empowers our teammates. We established ourselves as a dual bottom line organization many years ago, focused both on enterprise-level profitable growth, and professional and personal development for our colleagues. These efforts are underpinned by our three timeless values of safety, excellence, and respect. Stewardship of our core values sustains our culture daily and is reflected in the ways we work together, engage with our communities, customers, shareholders, and suppliers. In 2022, I am pleased to share our five key initiatives to further our ESG-related framework. build a comprehensive climate action plan, including collecting our energy, water, and waste usage of our manufacturing facilities, and working towards calculating your greenhouse gases baseline by year-end. Two, further our efforts on diversity and inclusion. Three, continue enterprise-wide ESG training and increased communication. Four, integrate ESG topics into NPRO risk management approach. And five, integrate ESG considerations into product and lifecycle management. Our ESG initiatives are supported and monitored by the Board of Directors as our multifaceted, multi-year framework is implemented. We expect to report progress to all of you on these initiatives on a regular basis. We start 2022 on solid footing as our teams navigate challenging macroeconomic conditions. As a leading industrial technology company, we will continue to invest in our portfolio of businesses that enjoy secular tailwinds, technological differentiation, strong recurring revenue streams, and solid cash flow returns, while safeguarding critical environments with compelling products and services for our customers in each of our businesses. In our 20th anniversary as an independent public company, we are building upon our strong foundation as we continue our transformation and lean into our best growth opportunities across the company. With the sustained benefits of our portfolio reshaping actions and our cultural and economic differentiation, I am proud of how far we have all come and incredibly excited for the future. The future of NPROW is bright. Thank you for your time today. I'll open the line to questions.
spk00: Thank you. We'll now be conducting a question and answer session. If you'd like to be placed in the question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 1. One moment, please, while we poll for questions. Our first question today is coming from Jeff Hammond from KeyBank Capital Markets. Your line is now live.
spk03: Hey, good morning, guys. Good morning, Jeff. So just trying to get a better sense on what's holding back, you know, raising the revenue or EBITDA guide. Seems like, you know, first quarter, you know, very strong start. And certainly, you know, sounds like, you know, business momentum has continued into Q2.
spk01: Yeah, hey Jeff. Yeah, we did have a good first quarter relative to expectations coming into the year, so the year got off to a little faster start. We're seeing some just concerns from the global economy. You're reading the same thing that we are with GDP growth globally being reduced on a couple of occasions, coming down in the US also, not just globally. So we think it's a little early in the year. to be adjusting our guidance even though we had a strong first quarter. So that's really our thinking. We feel like we'll know more when we get three months from now and we're on our call talking about our Q2 earnings. We feel like we'll have a little better outlook for the balance of the year seeing how the economy develops.
spk03: Okay. On ceiling tech, I just wanted to, you know, I know you talked about kind of this transitory dynamic with, you know, truck and getting price. So I'm just trying to get a better sense of, you know, how you're thinking about margin cadence, you know, sequentially into 2Q, you know, as some of that pricing, you know, comes through. And, you know, if you think margins, you know, all in for ceiling tech can hold flat for the year.
spk07: It's Eric, Jeff. I do think margins will hold flat and maybe even improve throughout the year in ceiling. The challenge is we just implemented a price increase March 1st that took effect May 1st. We have about a 60-day backlog as well. And so we have to work through the backlog before you start to see that price increase. So we'll start to realize that towards the end of the second quarter, somewhere it'll start to filter in middle of May and continue on and build more towards July. So we will see momentum in price throughout the year. I expect us to finish flat or slightly even ahead than where we were.
spk01: We'll also have some costs that continue to come back into the company as travel picks up. Overall, Jeff, I would say we're expecting our EBITDA margins as a company to hover around that 20% mark through most of this year.
spk03: Okay, and then just last one on AST. It looks like you had some added investments around Alexa and for the semi-expansion. I'm just wondering if those continue through the year. It looks like if you kind of back out and next edge, the margins were maybe a little bit lower than the prior year run rate for the base.
spk01: Yeah, if you exclude NextEdge, you're right, Jeff. We did have some margin contraction, and it was really attributable to several factors. We are investing in growth, so it's a good news story. There are some operating costs, not just capital costs, that are associated with investing for growth, not only capacity, but new product development. So that's one thing, and we saw that really across the board. across the board in the segment in the optical filter business. We saw it in semiconductors. We continue to ramp up for the nanometer launch, which, by the way, is going well. There's positive momentum there, and we expect that to pick up as the year progresses, which will have a beneficial impact on margins and earnings growth in the segment. And then we also have some ongoing investments that we're making to prepare for the ramp up that we expect in the United States in the coming years. And we're continuing to get the new building, the new capacity in Taiwan up to full speed as well. So there's ongoing growth, but it's all what I would call have a good news story. We're adding expense here in advance of growth that we are you know, very confident about as a team. That's a big part of it. Now, we did have some mix, product mix that affected the margins a bit. We had some cost pressures, even though the cost pressures are more evident in the ceiling segment, in the engineered segment. We did have some cost pressures ahead of some pricing initiatives, but, you know, overall, we're very positive about the future and the balance of the year for AST.
spk03: Okay, great. Thanks, guys.
spk01: One other thing I would mention. Specifically, if you look at LeanTech, we had a very strong quarter. It was kind of a high-water mark in Q1 of last year. So there's a little bit of a year-over-year comp that we see there. You see it in a couple other places in the company, too. You saw it in engineer because we had a very strong first quarter last year as automotive rebounded sharply from the pandemic low. So that's a little bit of a theme this quarter, too, compared to the last quarter.
spk00: Thank you. Our next question is coming from Steve Ferrazani from Sedota. Your line is now live.
spk02: Morning, everyone. Milt, you talked a little bit about economic headwinds, but I just want to get a sense after a very strong quarter, and I think the one area you noted weakness was automotive, but that's really on a supply side that is demand. So I'm just trying to get a sense even anecdotally, are you seeing any kind of economic headwinds that are impacting demand from customers at this point?
spk07: The short answer is our backlogs are still really strong. At the same time, if you look at spot truck rates starting to drop, they've dropped, I think, as much as 20% or 30% in the last few weeks, and that's usually a leading indicator of what the economy could be doing. And so we remain optimistic about our businesses. At the same time, there are some indicators that things are slowing.
spk01: Steve, just as an example, the last forecast I saw for GDP for the U.S. for 2022 has now dropped to 2.5%. I just saw it this weekend. Now, it's not across the board from all sources, but it's just the indicators, the spot rates. It's more of the global economic indicators that are affecting us, our decision to hold guidance, despite the fact that we had a good first quarter.
spk02: No, completely understandable. I just wanted to get a sense at this point if you are actually seeing it, and the answer sounds like not yet.
spk01: The backlogs are strong, and We're watching order patterns and we'll continue to watch that. We spend a good bit of time at our company with our commercial team, with our supply chain team and watching the indicators, but things are generally favorable as we see them right now.
spk02: And then CapEx was pretty low this quarter. One, I guess the question would be on what you're expecting for CapEx this year, and then also, given what, based on your guidance, another strong year projected for free cash flow, at what point would you consider returning cash to shareholders, or do you still see a really healthy M&A pipeline out there?
spk01: Yeah, those are good questions. Capital spending was lower than we would have expected in Q1, and we chalked that up to COVID and labor being out especially early in the quarter, and that made it challenging to move forward with certain projects that are planned for the year. At this point in time, we stick with the 3% to 3.5% of capital spending for the full year, and that, as we've said previously, that does not include investments that we may make to support onshoring of chip production in the U.S., So we'll provide more guidance on that investment as the year progresses. In terms of free cash flow, yes, we expect to have a good free cash flow year. It's likely that we will have some capital that we'll be spending to support the semi-growth in the U.S. As I mentioned, we'll talk more about that as the year progresses. So outside that and outside perhaps We've disclosed previously the various environmental matters and progression on environmental matters, specifically with the Sayek River. And so we expect there could be some cash outflow to bring that situation to full resolution as the year progresses. But other than that, if you exclude those two items, we would expect free cash flow for the year to be about equal to adjusted net income for the year. So that's favorable. And I think our cash flow is more predictable with the portfolio of companies that we have today versus what we had a few years ago. In terms of the use of that capital, that cash, right now our focus is paying down debt. We want to reduce our leverage. And then we also want to We want to use some of our capital for ongoing investment. We have organic growth investments to support, and we could have some inorganic opportunities that fit our strategy as the year progresses. So that's our expectation for the primary use of cash this year.
spk02: Great. Eric, Milt, appreciate all the talk. Thanks.
spk00: Thanks, Steve. Thank you. As a reminder, that's star one to be placed in the question queue. Our next question is coming from Ian Zafino from Oppenheimer. Your line is now live. Hi, Greg. Thank you.
spk06: I just wanted to maybe touch upon the pricing environment a little bit more. Are you bumping into any, let's say, elasticity? And also, as far as pricing, are you able to go back into the backlog and reprice the backlog, or is most of the price action you take just on new orders? Thanks. Thanks.
spk07: I don't think we're bumping into elasticity. In general, pricing actions are going through and customers are supportive. It's more around demand and they want to make sure they get what they have on order. We aren't really able to reprice the backlog. At the same time, we do limit it. So we're limiting it to, for an example, if we give 60 days notice, we're limiting the customers to buy in an average usage for that 60 days period so that they can't take advantage of a longer runway than what really exists. And so we do limit it in that regard. I'm not sure if that's complete, right? I'm not sure. I missed part of the question.
spk06: No, that was the question, and that was helpful. Thank you. And then maybe for Milt, on the debt stack, what's the sensitivity now as far as interest rate increases as relates to interest rate, I'm sorry, interest expense increases? And how much, again, is fixed versus floating? I know you broke it out a little bit, but just remind us again. Thanks.
spk01: Yeah, we're roughly 35% fixed, 65% floating, roughly, Ian. And we do expect we've changed our assumption. As I noted earlier in the prepared remarks, we've adjusted our assumption on interest rate increases from where we were a quarter ago, just given you know, all the expectations in the markets. And so we essentially now have, you know, we have four 50 basis point adjustments in our model, but one of them is at the end of the year that doesn't really affect this year. So in essence, we have three 50 basis points improvements, and I mean, increases, and if the economy slows and the Fed decides, I think it's almost a certainty that we'll see a 50 basis point improvement or increase in May. And then depending on what happens to the economy, it could be less than that. But we'll adjust our model as we know more.
spk06: All right. Great. Thank you very much.
spk01: Yeah.
spk00: Thanks, Ian. Thank you. Our next question is coming from Justin Bergner from Gabelli Funds. Your line is now live.
spk04: Good morning, Eric. Good morning, Mel. Good morning, James. Good morning.
spk01: Yeah. Hey, Justin.
spk04: A nice start to the year. My first question relates to the general drivers of the outlook. I mean, you kept your adjusted EBITDA guide unchanged, but you're noting more material investments in advanced surface technologies, at least in terms of the specifics you're sharing in your press release and presentation today. Is it safe to assume that within your adjusted EBITDA guide, which has stayed the same, that maybe there's a slightly better revenue outlook, but then slightly higher expenses associated with investment in advanced service technologies, or was this sort of always envisioned to be the plan?
spk01: Yeah, I think the best way I would describe it, Justin, you know it's fluid, and it's always moving. It's always adjusting. We know a little bit more now than we did three months ago on how some of the growth investments would develop throughout the year. I do think it's safe to say that we have baked into our guidance a little bit more specificity than we had a quarter ago on the impact. And so yes, there are some expenses that we are baking into our guidance that we just did not have clarity on a quarter ago. The same thing will be true next quarter. wherever we end up with on our guidance, it will take into account our latest thinking there. But it's a good question because, yeah, there are some additional expenses incorporated into our outlook for the year for those growth investments.
spk04: Okay, great. That's helpful. And are these growth investments mainly a 2022 phenomenon, or would you expect them to, I mean, I guess outside of the the U.S. semiconductor capacity expansion? I mean, would you expect some of the growth investments this year in advanced service technologies to continue into next year?
spk01: Well, you hit the big one. The big one that we're expecting is what's happening in the U.S. in the semiconductor industry. So if you exclude that, the way I would describe it is – we'll always be investing in growth ahead of the growth. So there's always going to be some element of that. It just happens to be a little bit more significant given where we are currently in the segment. So I think that's the way I would describe it.
spk04: Okay, great. That's helpful. And switching back to costs, how would you describe, you know, where we stand today, the relative growth? headwinds associated with the three major cost components, you know, inflationary costs of materials, labor and freight, and how does that view of those different headwinds maybe evolved over the last three months?
spk01: Well, I'll just add context, and then I'll invite Eric to jump in. And I'm going to give you a little walkthrough from where we were last year. You know, last year, we had really good experience more than covering cost increases during the first half of the year. And then in Q3, we still were fine. Q4, it became a little bit more challenging. And then I would say in this quarter, the challenge was more significant overall because we're seeing not only material costs increase, but we're seeing the effects of of wage increases and continued freight increases. And now with what's going on in China and the ports being locked up and what's happening in Ukraine, we think it's likely that those pressures will continue to affect the economy, which is one of the reasons why we have not adjusted guidance, as I mentioned earlier. So that's kind of a little bit of a look back at last year and then the trends this year.
spk07: Yes, if you think about it this way, we implemented price increases in January 1, and the heavy-duty truck market, we did it again in March. We have another one announced for June 1, and the rest of our business is July 1. So I think we've caught up in general, other than the heavy-duty truck market. I think we're caught up now, as long as things don't go crazy again in the next quarter. The other thing that's happening, and it's a smaller effect, is just a little bit more inefficiency. And it's really just due to supply chain. When things aren't available, you're not as efficient as you were before, so you're moving around the plant more often, not able to have as large of runs or things like that. So there's a little bit of inefficiency that's piled in there that's not priced. We're trying to capture that. As supply chain improves, that will improve as well.
spk04: Great. That's a very helpful color. One last question. You called out corporate expense being up, and I wasn't sure if you were trying to suggest this is sort of a new higher run rate or that you're trying to suggest it's not a new higher run rate. And then in the description you mentioned acquisition divestiture expenses and restructuring expenses, but I thought that's not part of corporate in your adjusted EBITDA calculations. So just any clarity there.
spk01: Yeah, I'll take the last question first because it's a good question and can create some confusion. Corporate expenses, when we report, we report the gap, the total number. And it is correct that the M&A portion that goes into corporate expenses that resulted in some increase year over year is adjusted out for adjusted EBITDA. But when we talk about corporate expenses, we're talking about all expenses. And so we did not exclude that for that specific purpose. Is that clear, Justin?
spk04: Yes, that is clear.
spk01: Okay. All right. Then we cited some restructuring charges at the corporate level as we reduced some of our overall headcount and expenses in conjunction with some of the stranded costs from the divestiture activity, particularly CPI. And so we had an opportunity to adjust our cost structure a bit. I would say it's on the margin, but a bit that made sense as well that resulted in some restructuring charge there. Once again, that restructuring charge is excluded from adjusted EBITDA, but it's included for purposes of talking about overall corporate expenses.
spk04: Great. Thank you.
spk00: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to James for any further closing comments.
spk05: Thank you for your time this morning. Have a great rest of your day.
spk00: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
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