Enpro Inc.

Greetings and welcome to NPRO Industries' second quarter 2022 earnings conference call. 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 is now my pleasure to introduce your host, James Chantilly, Vice President, Investor Relations. Thank you. You may begin.

Thanks, Doug. Good morning and welcome to Enpro's second 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 Valencourt, 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 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 and Form 10-Q. 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. We do not undertake any obligation to update these forward-looking statements. Also note, 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 inflation, geopolitical variables and trade tensions on market demand, and costs subsequent to the end of the second quarter. The impact of foreign exchange rate changes subsequent to the end of the second quarter, interest rate increases differing from assumptions outlined in guidance, impacts from the further spread of COVID-19 or other variants, and environmental and litigation charges. And now I will turn the call over to Eric.

Good morning, everyone. It's my pleasure to provide an update on our second quarter results and outlook for the balance of 2022. I would like to take the opportunity to thank our colleagues for their hard work as we are reporting an outstanding quarter in a challenging macroeconomic and geopolitical environment. Now on to our second quarter highlights. We delivered another strong quarter driven by continued organic growth and operating leverage across all three business segments. In the second quarter, sales of $333.3 million increased 11.6% year-over-year, with organic sales growth of 9.5%, about half of which was volume, another half price. Our reported revenue growth was driven by solid demand in most of our end markets, the benefits from our strategic pricing action, and the addition of NexEdge, which more than offset divestitures completed last year. With inflation at 40-year highs, we have been nimble in our pricing initiatives, which, in most cases, offset rising raw material costs and wage inflation during the second quarter. Hats off to our supply chain and commercial excellence teams for terrific execution in this difficult environment. We thank you for your hard work. Our second quarter adjusted EBITDA of $82 million increased 43.4% year-over-year, and we achieved a record adjusted EBITDA margin of 24.6%, a 540 basis point improvement from the prior year. Our margin expansion was driven primarily by the addition of NextEdge, divestiture of lower margin businesses, and operating leverage on organic growth, including strategic pricing initiatives. This is the second quarter in a row we have exceeded 20% adjusted EBITDA margins, the first in our history. Our strong momentum is a testament to the success of our transformation initiatives over the past several years. As you may remember, we finished 2019 with a 14% adjusted EBITDA margin. Three short years later, the midpoint of our increased guidance range implies an adjusted EBITDA margin in excess of 20% for 2022. We are proud of what we have achieved in reshaping our portfolio of businesses while solidifying our position as a leading edge industrial technology company. Our agile operating model has been a constant in our portfolio transformation, allowing us to continue to drive growth even in this challenging environment. A quick update on NextEdge, our most recent strategic acquisition. In the early going, NextEdge is more than meeting our expectations. as the teams are integrating seamlessly into the advanced surface technology segment. We are very pleased with the technological capabilities and process know-how NextEdge has brought to our customers and to our organization. Our strong results continue to reflect the sustainable benefits of our strategy as we lean into our best growth opportunities while maintaining cost efficiency and purpose throughout EnPro. We will continue to invest both organically and through strategic M&A in faster growing markets where we have competitive advantages while maintaining robust aftermarket and recurring revenue streams across our portfolio. Our performance and disciplined approach to capital allocation is translating into significant value for our Mpro stakeholders and we are confident that we are well positioned to build on this momentum. Now I will turn the call over to Milt for a deeper dive into our financial results for the second quarter. Milt?