Enpro Inc.

Macro forces including AI and the Internet of Things. As chip architectures evolve, complexity is increasing. More processing steps are needed to manufacture each new generation of chips, and increasingly sophisticated tools are required to complete these steps. With enhanced complexity, process yield deficiencies, contamination control, and lifecycle management of critical in-chamber tools become even more critical. Our semiconductor business sits squarely in the middle of these trends, and we are well positioned to participate in the industry's growth. To meet this opportunity, we are investing to maintain and expand our technological differentiation and to position our businesses in regions where above growth is expected. Above average growth is expected. We are excited to partner with our customers to drive the industry forward, including supporting the production of leading edge chips. This strategic focus paired with our customers, with our deep customers' relationship positions EnPro for sustainable long-term profitable growth. Now I'll hand the call over to Milt to discuss our financial results in more detail.

Thanks, Eric. Reported sales of $250.7 million in the third quarter were down 10.5% year-over-year. The decline in sales is primarily due to weakness in semiconductor markets. partially offset by growth in other markets along with a positive contribution from price. Adjusted EBITDA of $57.7 million decreased around 19% over the prior year period, while adjusted EBITDA margins in the third quarter were a still healthy 23%. Corporate expenses of $9.4 million increased slightly from $9.1 million in the third quarter of last year. Increased professional fees and personnel-related costs were largely offset by reduction in incentive compensation expenses. Adjusted to legit earnings per share of $1.58 decreased 16.4% compared to the prior year period. Lower AST segment results were the primary driver of the decline, offset in part by higher interest income. Moving to a discussion of segment performance, Sealing technology sales of $161.4 million increased 1.4% organically, driven by strong demand in nuclear and commercial vehicle aftermarket, along with a positive impact from pricing. Growth in these markets was mostly offset by a drop in commercial vehicle OEM sales, destocking in food and pharma, and some weakness in general industrial, particularly in Europe and China. For the third quarter, adjusted segment EBITDA $48 million increased 20.9%. Adjusted segment EBITDA margin expanded 460 basis points to just under 30%. Favorable mix driven by continued strength in nuclear and commercial vehicle aftermarket sales, the positive impact of pricing actions and cost controls more than offset rising labor costs and softness in certain markets just referenced. Year to date, adjusted segment EBITDA margins were 30.1%, up from 25.3% in the prior year. In addition to favorable mix in pricing, ongoing strategic and operational improvements continue to benefit our results. Turning now to advanced surface technologies, third quarter sales of $89.4 million decreased 27%, driven by the current slowdown in semiconductor markets and related customer inventory adjustments. For the quarter, adjusted segment EBITDA decreased a little over 50% to $19 million, driven by the decline in volume and unfavorable mix. Third quarter results were also impacted to a lesser degree by investments to support growth, including the build out of our facility in Arizona to expand our domestic advanced cleaning and coating capabilities. A brief update on our participation in the U.S. semiconductor expansion. We continue to update on a staged basis the building that we purchased in Arizona. As mentioned previously, we are seeking CHIPS Act support to help us transform this building into an advanced semiconductor facility on an expedited basis. We expect to use this facility to support the production of advanced node semiconductors at new fabs being constructed in Arizona. For the third quarter, adjusted segment EBITDA margin of 21.3% reflects unfavorable mix and the deleveraging impact of lower volume. Even with this year's decline in the semiconductor market, year-to-date adjusted segment EBITDA margins exceeded 24%. As Eric discussed, we continue to be excited about the multi-year trajectory of our AST segment against the backdrop of a widely expected doubling in the industry over the coming decade. Turning to the balance sheet and cash flow, we have ample financial flexibility to execute on our long-term strategic growth initiatives. We ended the quarter with a net leverage ratio of 1.4 times. Cash and cash equivalents were nearly $330 million, and we had nearly full availability under our $400 million revolving credit facility. During the third quarter, we reduced term debt by approximately $140 million, bringing our total long-term debt to around $650 million. We continue to generate strong free cash flow. For the first nine months of 2023, free cash flow exceeded $134 million, up from $101 million in the same period a year ago. Our focus on the cash conversion cycle throughout the organization and lower cash taxes paid in the period more than offset higher capital spending. During the third quarter, we paid a $0.29 per share quarterly dividend, and for the first nine months of the year, dividend payments totaled $18.3 million. Moving now to our 2023 guidance, we continue to expect revenue to remain relatively flat compared to last year. Adjusted EBITDA and adjusted diluted earnings per share are now expected to be toward the lower end of our previous guidance ranges of $248 to $256 million for adjusted EBITDA and $6.70 to $7.10 for adjusted diluted earnings per share. In ceiling, we expect continued strong results but lower sequentially in the fourth quarter given slowing demand in certain markets mentioned earlier. and typical seasonality returning in certain parts of the segment. In AST, based on current orders and production schedules, we expect higher results sequentially in the fourth quarter. Thanks for your time today, and I'll turn the call back to Eric.

Thank you, Milt. Our 3,500 colleagues across ENPRO continue to execute very well and are energized to win. Our teams have navigated exceptionally well for a variety of market cycles in the past, and today is no different. Our long-term strategic and financial plans remain unchanged. And day after day, we deliver differentiated products and solutions for our customers across several growing end markets. The ceiling segment's performance has been remarkable, and our teams deserve praise for delivering best-in-class profitability while producing highly engineered solutions that enable safe, sustainable, and reliable operations for our customers. In AST, despite a challenging year, we are a critical part of the global semiconductor ecosystem and continue to invest in a variety of growth opportunities. Our long-term growth trajectory remains intact, and we are focused on capitalizing on the investments we have made and will continue to make throughout AST. Thank you for joining us today. We appreciate your interest in ENVRO. Now I'll open the line to questions.