NPO - Earnings call transcript Q3 2024

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Operator

Greetings, and welcome to the EnPro 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. [Operator Instructions]As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, James Gentile. you. Thank

begin. may You

James Gentile

can good our Conference Welcome and you Call. being and today Executive where call and this Bruderek, that Quarter With Joe and call. that EnPro's Financial Chief XXXX Chief is me you empro.com, at Earnings I Eric webcast President the morning, Irene, Officer. presentation to accompanies Vaillancourt, everyone. is Third our find President Thanks, Vice will Officer; remind Executive

non-GAAP the we financial measures involve Also, which call, reference facts unforeseen statements the we these will SEC. making on with that that the GAAP filings number number not will of be will considered forward-looking year a presentation in We reminder Tables today's to uncertainties. non-GAAP and providing historical statements this we measures. statements. undertake and are of these the described those During this to measures do any uncertainties, a update reconciling are call, appendix excludes materials. These comparable that the obligation full nature. impacts guidance, in call friendly not from including forward-looking be included risks a in our to and Also during note, risks XXXX are

my It Chief Vaillancourt, our Executive call to President pleasure is over now and Officer. the turn to Eric Eric?

Eric Vaillancourt

balance we Thanks, James, the and our XXXX. third review joining as results good you quarter updated today Thank morning, for of everyone. us and outlook for

us our variety well our which perform softness a revenue markets. of underlying recurring sales revenue more quarter Aftermarket Third up of of portfolio in demand to up our provides comprise despite year-over-year were served year-to-date XX% environments. enables stability solutions in organically to and than half slightly persistent or

and consolidated good portfolio. quite strength EBITDA of in demonstrating adjusted in served been margin Overall, markets. demand the headwinds have the face a inherent was in balance XX.X%, Enpro certain large healthy results the Our even

long-term for our by hard, growth. our vision Our strategy motivated excited working and are teams and

to the on Our long-term demonstrated be the or depending and EBITDA basis single-digit macroeconomic in grow range. the Sealing vision the revenue generate ability the and Both mix. adjusted have mid-single-digit XX% segment growth in Technologies XXX high minus is for plus margins, points, environment to AST to in range segments

safety, We consistently a are time. over would to thank where across our continuous company strongest, by as plan excellence respect colleagues our for remaining and commitment we to this performance on of while our of customers. our core improvement their solutions like achieving areas important the in critically implementing to motivated that number agile investing values while optimize we playbook our and We provide

Operating call was solid sequential and third flat, commercial Technologies At with steep in sales. X% despite in was segment X.X% Sealing quarter year. a growth ASP, sequentially. declines in a Now both quarter our results in on the turn to for review, more I the and the outlook for balance will to our vehicle of detailed third we delivered sales the discussion over while my profitability revised After profitability of year-over-year and sales, performance. our the Joe performance improvement consistent OEM

exposure our solutions of remainder We for continue semiconductor chip cleaning however, particularly which tied to the Demand, strength, contributed supply to business, advanced result. quarterly favorable the choppy the to see XX.X%. in has to semiconductor capital production. areas basis improvement be mix continues of Technologies, precision expanded broad Continuous equipment and EBITDA to points chain spending. XXX strong management another In adjusted effective segment Sealing margins initiatives, to

reflects in profitability continued Sealing strength As the a and positive reminder, Technologies momentum segment. of underlying the our

a in aftermarket strong growth have engineering and organic characteristics, incremental culture. a focusing We improvement firm applied created for foundation on continuous growth compelling by investment profitable differentiation,

critical environments. in our core continue competencies opportunities build that markets strategic we safeguarding adjacent Additionally, to and upon pursue

Technologies X.X% segment, Surface Our outlook year-over-year the X% sequentially. and for the revenue segment In improved Advanced remains positive.

EBITDA equipment. as by mainly initiatives especially waiver long-term growth. growth a segment demand shifting position to for however, investments, both profiles we fab Adjusted continue for for improvement driven and narrowed Strategic proceed operational AST sequentially, and precision year-over-year margin, cleaning solutions

ASP beginning are see but more previously than to recovery sales We lap year-over-year a we protracted expected.

see areas chip the expected We tied choppier node to equipment continue for advanced production. to quarter such were than concerning as progressed. we strength key solutions in as Orders coating third

executing capital remains provide utilization drive with growth strategy to slow in customers process spending. in that and industry. showcase are markets semiconductor low our our focused efficiency the capabilities capacity term, building while equipment supply value attractive the semiconductor currently and AST's advantages chain. improvements resulting technological in on Overall, our we Long differentiated and across multiyear essential

Our shape. excellent balance in sheet remains

underlying free cash a organically flow to investment of both growth on strategic and acquisitions. returns through variety strong pursue and us generation enable Our opportunities,

We are outlook the slower finish previously our expected. XXXX adjusting to reflect to than

disciplined execution capital strategy and will drive allocation strong Our we forward. Joe? our continue as value-creating

James Gentile

and Eric, you, Thank morning, everyone. good

$XXX.X third of performance sales increased business. declines compared quarter vehicle commercial OEM up portions the the steep In sales capital our saw Technologies We year, of organic details Sealing third the strong sales and in growth in our year-over-year into sales to despite go performance. AST semiconductor now million with of prior and slightly. overall X% slow equipment Let's quarter, at

an Technologies. capabilities driven margin prior compensation primarily price-based XX% in XX.X% by accruals differentiated period. incentive million year lower XXX basis and lower the Corporate increase with continuous efficiency. adjusted increased incentive our performance initiatives of improvement annual quarter investments due new million partially of the current XXXX $X.X year continued, of Third and points quarter EBITDA along discipline Adjusted EBITDA expenses. to chain ago. professional The supply compared products ongoing in expense, Growth offset expense and by share Sealing compensation in year in strong from increased on third $XX.X increase of $XX.X to million was expanded a

diluted drove largely by driven the $X.XX XX%, adjusted factors share per of year-on-year. improvement earnings Adjusted the EBITDA increased that

of sales year-over-year, General by driven million sales Sealing recovery segment demand and American performance to a increased North Asian markets. firm Technologies X.X% in tepid were flat. sales performance. organic $XXX Moving increased a industrial Europe offsetting and of relatively discussion

applications, in sales offset January of XX% performance, and pricing revenue. declines and AMI completed to OEM improved Strategic acquisition growth year in of also our segment actions steep sales aerospace pharma vehicle commercial In solid total space the Aftermarket and comprised in nuclear firm revenue. this commercial and industrial general sales food contributed. addition

the For from the growth the EBITDA mix continuous the quarter, period. profit improved segment during initiatives, segment's aftermarket AMI pricing, adjusted XX%. improvement third increased contribution drove Strategic and

EBITDA XX.X% Adjusted quarter, up was the third segment basis margin in points. XXX

XXXX, EBITDA segment sealing For adjusted the around XX%. of X margins delivered first months

year, said to XXXX, return As represents usually EBITDA fourth we of we where the normal patterns have in the the seasonal sales low to since segment. of the expect adjusted the for and beginning quarter point

of long-term growth Sealing as drivers creation number we We are strategic excited Technologies, and acquisitions. focus on expanding about and in investments of value growth opportunities the through

the segment. Turning Surface now Technologies to Advanced

X.X% such sales were production, up and and sequentially. saw quarter artificial as million high-bandwidth of X% $XX.X advanced Third We node memory. precision supporting tied in chip year-over-year growth up intelligence applications solutions to cleaning

capital continues and in from However, spending capital suggest demand magnitude the to for while position remains in long the evolve overall timing variety and optical the market forecasts term, semiconductor filters to growth that overall equipment, move choppy. strong equipment an of secular recovery a is a right. coatings sources of and Market

year-on-year. the out us XX quarter, from third margin was segment flat XX dynamics and down play in basis points year And In we near EBITDA term. are last points for sequentially. the was adjusted segment EBITDA Adjusted XX.X%, similar basis seeing

expense slow operating fab increases tied saw tied investments, deleveraging equipment demand growth segment revenue and third margins to we quarter. While wafer increase, crimped segment fixed the cost to during

into continue capacity work to expansions in to the associated expected as we market well that fourth for node dynamics the with the have these a accelerate. expenses and will applications position targeted expect trajectory. resumes semiconductor We downturn, quarter growth the advanced are invested Throughout AST qualification

continuous AST the playbook As are matures, success Sealing well of our select as and initiatives. improvement we The platform. platform underlying Technologies optimization the implementing

the payments from the reduction. was and X.Xx about EBITDA. last year-over-year net ratio of and end drivers flow. XX-month stood year-to-date to the year. leverage year were cash tax compared Timing to higher million the balance trailing third of flow Turning working cash primary approximately at our $XX last sheet $XXX Free cash capital adjusted million, down of quarter, the At

we exceed million. $XXX For free the to expect cash flow year,

around be exciting in-chamber spending made to our reducing for versus million number more forecast for supporting on $XX be previously will expected. across continues company, tools are We other but to our the critical of XXXX $XX technical a phased addition applications, previous CapEx to projects growth Progress innovation expectation million. than of leading-edge in

pipeline as growth to organic high-margin to continue invest of excited be drive about we We long-term our growth. opportunities

In shareholders. broaden $X.XX quarterly financial strong execute the through while paid to year-to-date strategic we $XX to continuing and quarter, We with that million. capital organically flexibility per initiatives, payments return to have both our capabilities, totaling third share dividend a acquisitions our

X-year renewed last Finally, repurchase week, our authorization that $XX Directors recently expired. Enpro million the Board of share

Moving guidance coatings in now sales AST, at XXXX, to consideration weakness guidance fourth digits earnings Enpro in orders our and the and we are revenue for OEM also Taking commercial continued variability be time, lines view of previous to sales fab the vehicle given now equipment adjusting low view flat. down guidance. expect Sealing know for all year The factors to primary current and Technologies. approximately sales are this our XXXX wafer of slower our that versus total in factors ranges, in reducing quarter, full compared and into we single we sales our in

approximate quarter. the work segment range EBITDA previous we orders earnings XXXX. expect We used cycle $XXX current Normalized adjusted demand coatings, mid-single-digit share shorter to our diluted $X XX% shares to share will to respectively. AST rate to $X $X.XX, to into Lower-than-expected and critical now and of tax from In range in-chamber soft at spending earnings calculate of $XXX related tools, for million profitability demand for applications outstanding diluted remains and conditions down leading-edge and adjusted adjusted persist to accelerated $XX per $X.XX the to and million million growth to expect versus per drive fourth qualification $XXX lower million view between million. $XXX in for AST,

I Technologies, continue call sealing although quarter weaker profitability. Sealing expected. now comments. results see the for showing previously a In seasonally the back Fourth to will while low OEM the closing period, during backdrop we point than still will to lowest vehicle year, represent turn will strong the sales resilient Eric of remain commercial

Eric Vaillancourt

Thanks, Joe.

generates caused to adjust pressures full flow view, near-term OEM in semiconductor vehicle and us portfolio cash While year our commercial demand and balanced attractive margins our returns.

We in opportunities numerous to to growth. while attractive drive optimize further Enpro opportunities long-term advancing high-margin investing operationally are

build creation. driving value Our foundation balance we that we long-term great and for the upon strong to is shape, in continue sheet have

for again leading-edge critical for you deliver to is applications that our joining time impact that today. questions. to and now customers we There environments us better powered lives. day, your our be critical Enpro Every solutions no and safeguard welcome meaningful Thank

Operator

Thank you.

is We now Instructions] be question have of conducting Markets. will first Capital session.[Operator a from KeyBanc Hammond Jeff The question-and-answer we

Jeffrey Hammond

morning everyone. Good

Eric Vaillancourt

Good morning, Jeff.

Jeffrey Hammond

maybe start that peers inflect. So semiconductor. just kind to We've of taking to longer seen with from it's

seeing wondering kind meaningful to inflection? do an Or customers we slow with of thinking finally from this the maybe frame off Just XXXX? order what funnel kind more bottom? Is conversation you're a early on bounce of see

Eric Vaillancourt

Jeff, Well, describe is I choppy. it way the still would being

to said, are a just leading the of at horns at or just slow leading announcements We've just IDM their of some a customers it's quarter our conservative. are bottom. -- X in this rebound from of cautious. you and IDMs As looked bit But uncertainty, a third the the pulling little maybe little with being point, the create in the people

So bit. keeps just profile balancing little a right our now, demand around

James Gentile

I are just customers yes, from add, I And Okay. the Jeff, see our just mean, to plans was we key that moving build around. going

dynamics a Eric uncertainty. As on customers of that kind have couple kind bit of and a weigh inventory of little our to mentioned, out the retrench caused

kind of market the visibility to So the just the expect don't right through remain will we now of that, have XXXX, conditions what the as rest year. things of these move do. beginning good into After into

Eric Vaillancourt

had. went with happy think just more X quarter it, on, we had add inventory based at to they then customer some recent I Jeff, and doing news. as destocking on the And a point, think, they I a the they're were little customer to bit meeting

more bit was little a there's so there previously. than destocking And

Jeffrey Hammond

and kind just on gears That's and good is big color. some really of lot business, just us just And wanted data around think Sealing. how been resurgence nuclear Okay. there's it news around participate to set nuclear level Shifting Maybe flow might better in resurgence. a today? your of announcements that you how understand and you to centers

Eric Vaillancourt

significant the for good terms That's to at fundamentally. you sales. When it's Nuclear the going our of X% reactor it's it's to we It's the at it but obviously to in portfolio business growth the same for is content going of EnPro going our be But to not today. not like have, At it's the look about that. not us. us significant time, to to anything time, where it's for create business. double-digit average us. good, is nuclear change trajectory same or

the So X them, X substantial, or every of and vessels a years. reactor we they fields there's couple press have while only buy of the for replace X time, and they them that's and at that

but So run. consider would you it's home not -- a going to be

And will going be substantial long-term it's be profitable business, and it's modular and of and it's as reactors, solution. more more we great So them. there a good a to small

not building us. be people be long-term consistent going likely huge At the profitable. for will that's in that's It don't a very same want nuclear steady for to increase that time, I growth

James Gentile

think make and of When singles the kind can complemented of growth that together Technologies Sealing nuclear and are capabilities that term, that we generation the kind we level growth to long segment, organic that or dynamism dynamic acquisitions X incremental into sure sustainable of structure deliver bunt mean, that the doubles strategic performance when of about nodes working segment, really put teams our about that the of many our range mid-single-digit we X just power of are that and expand I we to X talk customers. by build hard

Operator

Company. Steve question we & Ferazani Sidoti from is next have of The

Steve Ferazani

X the the mentioned accelerated everyone. us all you of Joe, the for I to on XQ. detail related growth morning, walk And certification appreciate spending the ask then increased softening I to on call about those margin wanted morning. on Can part you ASTs expecting I process initiatives. through this know, Good in elements? spending

Joe Bruderek

Yes.

schedule the We've little facility bit our gone executed right? quite Arizona And progress there. of has build-out ahead in well. So well that quite operationally, of a actually we're

Arizona So accelerated working expected. cleaning we've demonstrate bit little for that we qualification so and than kind customers, we're that facility into leading-edge a can node with the our key more pulling work into and of XXXX previously Copyxact

going quarter. to demand put of a fourth cost in into little said of ahead why of is that's that's accelerating. some that bit XXXX And So I the

that, returns Arizona, qualification work we've and just is we're accelerated doing X we're of of there. this very Remember, excited Phase by positive some the quite work the in early are but and

some that of XXXX. into we're pulling So just

Eric Vaillancourt

I we're AST said the operational other our implementing factors in excellence group.

value seeing come you're what will So that is investment ahead of the later on.

things in or like both it hours very innovation minutes some automation semiconductor lower. seeing of inspection performance our process optical -- recently also reduced some cost some You're business significant where from terms and had improving and our our our in business, some time is cases. inspection is in We've

things more facility to so some And with that throughout the factories. little get like equipment around some positive along consolidation, moving flow

just the AST businesses, started in getting success initiatives Technologies really saw our platform. we're and the of Assuming You those on

from that ahead takes investments of comes extra that it. all benefit the So

time, industry. time slower the a same it's the in At

got that so of say, are And you've people keep lot to trying busy. to trying a

get very We We busy. things have projects. are meaningful been working time do to meeting on don't when

XX XX% said will so of to EBITDA the be And those without we at have on in business minus benefit over those will mix we of over that or as point. And basis flow cost couple depending and But time. the at time. balance the the a earlier, initiatives benefits this volume plus points,

we're excited that really still about So business.

Steve Ferazani

out operation? certification expected just ramp ask if about of Arizona, you to Great. expect revenue the process, that see when I generation on would could the meaningful And

Eric Vaillancourt

'XX. the personally that mentioning may of key until that have I in talked sometime saw X give the answer And full ramp could our up that drive a expect you Yes, would report on some starting of the yesterday volume middle at about customers right they're now, we press time. you our of best ramp would X-nanometer XXXX. But

Steve Ferazani

Yes.

all? helpful. talked their demand you have about didn't very last now Have over demand months? strong doing multiple themselves. capabilities That's really came customers flipped that to Alexa which that's more the given weak being Okay. because Alexa they the the a you Alexa, market When build, you trying you custom lot of specific of weak reputation for aggressively market that to bought to at Are recent a

Eric Vaillancourt

there. wouldn't in were We're investing are flipped still coming have We as same the back they those opportunities now. place and

COVID, doing started I projects. people they stop to a just really said calls, a flip home. As animal. it it's snake because before of stop in new following is Everybody That cause working like from large previous traveling, had

the bold had bolts is very the The in that without had through went active behind went wins something this now customer And that some it. we've or significant pipeline so and last months. they through few very

business dramatically. so starting is And improve to that

James Gentile

successful end areas Alexa of base. certain are markets a areas customer several space free they as very are the could There applications. communications, well. have and that be in of semiconductor diversified new space But strength some

Alexa for of So us, the the top steady pyramid outlook industry. continue be for in and they a remains to business the

Eric Vaillancourt

applications again. taken sciences off also surgical recently have Life

Steve Ferazani

Last seeing for CapEx. does not just you're that what One, up And you debt is X two, -- lowered if lowering taking spending reduction are debt me. Great. ramp CapEx, reduction, you some place? then what

James Gentile

Yes, Steve.

overestimated time, CapEx going lowered to as million probably capacity in is CapEx really our bit doing we're At year. to same equipment. work the you $XX million. there's on we to our range. this little yes, said, our dispersion more million execute we $XX into $XX a probably So guide advanced gas the some ability Frankly, on

of that's innovation some coming of better time. And ultimately And the working advanced learnings, in on through in a more over been that on engineering solution, will have optimized it teams that at solution a that result locations. phase more probably some And the it's and end. so the based our to multiple

So solution to a we're multiple of some even ultimate bit going a it of periods in some though because little spending ourselves, phase that result that ahead over was better there. will of

I investments primary standpoint, and those think always from in investments going are in. to allocation organic prioritize that prioritize to investing be forward, M&A and a capital we're areas going X going we're our

of the focus and growth. to of on moment, the be looking will and inorganic organic at capital legs on act not our majority other We're current allocation

driven we'd we're we cash generate Yes. XXXX partially I CapEx million the by budget. we as free lower that flow And over of to revenue percentage work focused going forward, $XXX be spending, look X.X% fact growth in have to mean well from like will on to a of a about perspective, capital high-margin put of in to of X% revenue X/X which projects.

Operator

we is next [Operator Oppenheimer Ian have question of Zaffino Instructions] from Co. The &

Ian Zaffino

you Just wanted edge where little down less drill you seeing weakness? what bit so exactly in that or to a and very in kind kind moved has that Kind against of spectrum. Is it of leading more. of are AST -- maybe

Eric Vaillancourt

I I the of think leading edge. again. part didn't question you was said hear first a your

Ian Zaffino

Yes, where where Exactly it things leading you exactly edge, are the difference where expected? it? edge? you than a Is weaker is kind non-leading of on kind seeing had are of

Eric Vaillancourt

So leading-edge cleaning very and applications are strong. very,

doing well. that the which go equipment And and the of so spending, business refurbishment leading does leading testing edge, on as everything legacy pieces our product new well. some well and within as we're to cleaning edge very and capital

is the -- edge. leading it's out a edge still That's and much little still it's much say factories not break fully this this where utilized. aren't So There's bit trailing is hard and slower. to it

stuff that's of And they'll The businesses equipment. up, But piece and rest slowest so buy utilization strong. of services it. when is rates our very more go the

James Gentile

weakness a those little flow compared as had We order just And a throughout -- in the shorter choppier to this in cycle little kind that and quarter around that well. lines also certain into we coatings is of little QX initially be a tend this felt product incremental just solution to saw than bit. -- move

Ian Zaffino

like in comps that to we space say, rebound Okay. just growth get year. really growth or enough Is let's kind they do positive return as of guess, back of we like a back to or then equipment like or big growth? get to half the a positive the next cap see up, into, semi at easier, division, And of that to to solutions cleaning enough a in I lot first move kind need look you

James Gentile

in to year-over-year. X.X% quarter up X%. were those we comps were up AST material so starting the mean, This I like of sequentially lower We lap. is first

of for flattish still section. QX headwinds just discussed a margin a the guidance top in we the from are a We with seeing results of perspective bit QX, line kind from like on little

benefits the think long-term when forecasted of hockey which in past are there slow the I still see of will probably we're fruition, in industry stick us growth. terms type outlook that to first with a bit lowest come our a about but dynamics that costs half, opportunities think of we're acceleration going still kind should growth. But not of that while point drive demand likely balancing investing kind little intermediate for those we to actually of because

Eric Vaillancourt

represented Yes. -- this the expected. we what quarter, I year, of for mean or talked the first bottom last about we year

sequential so slight we not quarter-over-quarter. demand seen we've just as expected. of as originally And much It's improvement

quarter sequential was so back year. we originally substantial the fourth see go growth, year-over-year and not that the last predicted improvement to just is in we're And the half second a that seeing this quarter of of first our as in year, expectation come and into we'll

James Gentile

situation the few us Yes. hand until realistic next to fruition. quarters, kind others. That's things Like for to of some at it's be and just choppy the just many these over come going of

Operator

We have from of Jeff KeyBanc Hammond question a follow-up Capital Markets.

Jeffrey Hammond

update integration on your and just actionability the MI in pipeline? an M&A just Maybe

Eric Vaillancourt

culturally the every a We very it. we actionability, run all are Term just run, home home Kevin pipeline. an has we're robust and his at outstanding business of every acquisitions, standard, AMI excited aspect very that a team. by with we're thrilled team look been and that. have doing of job time. That the about

But some business AMI a going by think point and We at will here. another to to I every we'll something. find similar goes we're literally don't at look at week look disciplined, don't week. remain we opportunities

James Gentile

of And coming market the kind picked bit. activities to a up. quite like it seems second have picked half up things through The

over seeing we've looking we're a opportunities to been period coming closely softer now more So at market. of things that

So actionable the technologies interested other key at we're yet, we pharma, that really Nothing Jeff. a and that in but interested. is areas really and And focus extension got couple continue sealing for opportunities in. we're in look spaces in of food measurement, active, pipeline we've things that's to and really test

AMI is culture perspective. of a type of for business really strategic model criteria, leadership meets both good Enpro all our that the a and and and from

So we've here got in that a hopefully that like execute pipeline to our number of opportunities we're going soon. on

timing more of of assets. Yes. set these just It's about terms opportunity rather availability than in of some

Operator

would time, there I are floor back remarks. James over closing like turn At And Gentile further for no the to to this any questions.

James Gentile

Have your see terrific Thank today. interest a next and quarter. you day, for you

Operator

conference. Thank today's for joining conclude you That's us.

now lines. may your You disconnect

EnPro Industries (NPO) 5 Nov 242024 Q3 Earnings call transcript