Enpro Inc.

Greetings and welcome to the NPRO Q3 2024 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and then zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, James Gently. Thank you. You may begin.

Thanks, Irene, and good morning, everyone. Welcome to EnPro's third quarter 2024 earnings conference call. I will remind you that our call is being webcast at EnPro.com, where you can find the presentation that accompanies this call. With me today is Eric Valancourt, our President and Chief Executive Officer, and Joe Bruderick, Executive Vice President and Chief Financial Officer. During today's call, we will reference a number of non-GAAP financial measures, tables reconciling the non- GAP measures to the comparable GAP measures are included in the appendix to the presentation materials. Also, 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 those described in our filings with the SEC. Also note during this call that we will be providing full-year 2024 guidance, which excludes unforeseen impacts from these risks and uncertainties. We do not undertake any obligation to update these forward-looking statements. It is now my pleasure to turn the call over to Eric Valencourt, our President and Chief Executive Officer.

Eric? Thanks, James, and good morning, everyone. Thank you for joining us today as we review our third quarter results and updated outlook for the balance of 2024. Third quarter sales were up year-over-year and up slightly organically. despite persistent softness in more than half of our served markets. Aftermarket or recurring revenue, solutions comprise 54% of our revenue year-to-date, which provides underlying stability to our portfolio, enables us to perform well in a variety of demand environments. Our results have been quite good, even in the face of demand headwinds in certain large served markets. Overall, consolidated adjusted EBITDA margin was a healthy 24.6%, demonstrating the inherent strength and balance in the EnPro portfolio. Our teams are motivated and working hard, excited by our vision and our strategy for long-term growth. Our long-term vision is for revenue growth in the ceiling technology segment to be in the mid single-digit range and AST to grow in the high single-digit range. Both segments have demonstrated the ability to generate 30% adjusted EBITDA margins, plus or minus 250 basis points, depending on the macroeconomic environment and mix. We plan on achieving this consistently by investing in a number of areas where we are strongest while implementing our continuous improvement playbook to optimize our performance over time. We would like to thank our colleagues across the company for their commitment to our core values of safety, excellence, and respect while remaining motivated and agile as we provide critically important solutions to our customers. Now on to our third quarter performance. After my review, I will turn the call over to Joe for a more detailed discussion of our results and a revised outlook for the balance of the year. Operating performance in the ceiling technology segment was solid in the third quarter, with 4.5% sales growth and consistent profitability, despite steep declines in commercial vehicle OEM sales. At AST, while we delivered a 5% sequential improvement in sales, profitability was flat, both year-over-year and sequentially. We continue to see areas of strength, particularly in our precision cleaning solutions tied to advanced chip production. Demand, however, continues to be choppy for the remainder of the semiconductor business, which has broad exposure to the semiconductor capital equipment spending. In sealing technologies, adjusted segment EBITDA margins expand at 300 basis points to 32.7%. Continuous improvement initiatives, effective supply chain management, and favorable mix contributed to another strong quarterly result. As a reminder, our continued positive momentum and profitability in ceiling technologies reflects the underlying strength of the segment. We have created a firm foundation for profitable growth by focusing on applied engineering differentiation, compelling aftermarket characteristics, incremental investment in organic growth, a strong continuous improvement culture. Additionally, we continue to pursue strategic opportunities in adjacent markets that build upon our core competencies in safeguarding critical environments. Our outlook for this segment remains positive. In the Advanced Surface Technologies segment, revenue improved 3.5% year-over-year and 5% sequentially. Adjusted segment EBITDA margin, however, narrowed both year-over-year and sequentially, driven mainly by a shifting demand profiles for waiver FAB equipment. Strategic growth investments, especially for precision cleaning solutions and operational improvement initiatives, proceed as we continue to position AST for long-term growth. We are beginning to lap year-over-year AST sales, but see a more protracted recovery than we previously expected. We continue to see strength in areas tied to advanced node chip production. Orders for equipment and certain key solutions such as coding, or choppier than we expected as the third quarter progressed. Overall, capacity utilization remains low across the industry, currently resulting in slow semiconductor capital equipment spending. Long term, we are focused on executing our multi-year strategy to drive AST's growth in attractive markets while building differentiated capabilities and efficiency improvements that showcase our technological and process advantages and provide our customers with essential value in the semiconductor supply chain. Our balance sheet remains in excellent shape. Our free cash flow generation and strong underlying returns on investment enable us to pursue a variety of growth opportunities, both organically and through strategic acquisitions. We are adjusting our outlook to reflect the slower finish to 2024 than previously expected. Our strong execution and disciplined capital allocation will continue as we drive our value-creating strategy forward.