Enpro Reports Strong First Quarter 2023 Results

First Quarter 2023 Highlights

(All results reflect comparisons to prior-year period, from continuing operations, unless otherwise noted)

(*Non-GAAP measure. See the attached schedules for adjustments and reconciliations to GAAP numbers)

• Sales of $282.6 million up 4.6%; organic sales up 6.3%

• Income from continuing operations attributable to EnPro Industries, Inc. was $26.0 million compared to $11.9 million last year

• Adjusted EBITDA* up 16.3% to $68.6 million; adjusted EBITDA margin* up over 240 bps to 24.3%

• Diluted earnings per share from continuing operations attributable to EnPro Industries, Inc. of $1.24, compared to $0.57 last year

• Adjusted diluted earnings per share* from continuing operations attributable to EnPro Industries, Inc. up 25.0% to $1.95 versus $1.56 last year

• Sealing Technologies segment achieved record profitability

• Maintain full year 2023 guidance for revenue growth of flat to low-single digits, adjusted EBITDA of $248-$260 million and adjusted diluted earnings per share of $6.45 to $7.05 per share

EnPro Industries, Inc. (NYSE: NPO) today announced its financial results for the three months ended March 31, 2023.

“Enpro started the year with another outstanding quarter of execution as we delivered strong organic sales growth and margin expansion, driven by record performance in the Sealing Technologies segment,” said Eric Vaillancourt, President and Chief Executive Officer. “Despite the current weakness in the semiconductor market, we continue to expect strong growth in the Advanced Surface Technologies segment over a multi-year period. Our focus remains on delivering differentiated and critical products and solutions in a variety of growing industrial technology markets to drive profitable growth."

Mr. Vaillancourt continued, “Solid cash generation enabled us to further reduce our net leverage to 1.6x in the quarter. Our strong balance sheet provides us with flexibility to invest in compelling organic growth and productivity opportunities, while prudently considering acquisitions that meet our strategic and financial criteria. With our resilient business model and high-margin portfolio of innovative, differentiated solutions, Enpro is well positioned to generate significant long-term value for all stakeholders and thrive in a variety of economic environments."

First Quarter 2023 Consolidated Results

Sales of $282.6 million increased 4.6% compared to the first quarter of 2022. Revenue grew as a result of volume increases in the aerospace, nuclear energy, general industrial and commercial vehicle markets, as well as the contribution from pricing actions in response to inflationary pressures, partially offset by the near-term slowdown in semiconductor markets. Excluding the impacts of divested businesses and foreign exchange translation, sales grew 6.3% year-over-year.

Corporate expenses of $10.7 million in the first quarter of 2023 decreased from $12.9 million in the first quarter of 2022, driven primarily by lower incentive compensation accruals and reduced restructuring and professional expenses.

Income from continuing operations attributable to EnPro Industries, Inc. was $26.0 million, compared to $11.9 million in the prior-year period. Diluted earnings per share attributable to EnPro Industries, Inc. was $1.24, compared to $0.57 in the prior-year period. This 117.5% increase reflects the strong operating performance in the first quarter, including the control of SG&A costs in an inflationary environment, as well as the impact of the amortization of an inventory fair value adjustment in the first quarter of 2022 primarily associated with the acquisition of NxEdge.

Adjusted net income from continuing operations attributable to EnPro Industries, Inc. of $40.7 million increased 25.6% compared to the first quarter of 2022 and adjusted diluted earnings per share from continuing operations increased 25.0% to $1.95, compared to $1.56 in the prior-year period.

Adjusted EBITDA of $68.6 million increased 16.3% compared to the prior-year period driven primarily by volume growth and positive mix in Sealing Technologies and pricing initiatives, partially offset by weakness in areas of the semiconductor market and by labor and material cost increases across the company. Adjusted EBITDA margin of 24.3% was up more than 240 basis points compared to the prior-year period.

First Quarter 2023 Segment Highlights

(All results reflect comparisons to prior-year period unless otherwise noted)

Sealing Technologies - Safeguarding environments with critical applications in diverse end markets

Garlock, STEMCO, and Technetics Group

• Sales increased 12.8% versus the prior-year period driven by strong demand in the aerospace, general industrial, nuclear and commercial vehicle markets, along with the positive impact of pricing initiatives in response to inflationary pressures. Excluding results of the business divested in the fourth quarter of 2022 and foreign exchange translation, sales increased 15.1% versus the prior-year period.
• Adjusted segment EBITDA of $49.7 million was up 44.9% year-over-year, with adjusted EBITDA margins expanding approximately 640 basis points, as strong volume and price increases offset rising material and labor costs. Excluding the impacts of the divestiture and foreign exchange translation, adjusted segment EBITDA increased 48.5% compared to the prior-year period.

Advanced Surface Technologies - Leading edge precision manufacturing, coatings, cleaning and refurbishment solutions and innovative optical filter products — NxEdge, Technetics Semi, LeanTeq, and Alluxa

• Sales decreased 6.3% versus the prior-year period driven by the current slowdown in semiconductor capital equipment spending. Excluding foreign exchange translation, sales decreased 5.3% year-over-year.
• Adjusted segment EBITDA decreased 15.5% versus the prior-year period and segment EBITDA margins declined 290 basis points, driven primarily by the decline in volume, unfavorable mix, and higher material and labor costs. Excluding the impact of foreign exchange translation, adjusted segment EBITDA decreased 13.5% compared to the prior-year period.

Balance Sheet, Cash Flow and Capital Allocation

The company generated $26.4 million of cash flow from operating activities of continuing operations during the three months ended March 31, 2023 and $21.4 million of free cash flow, net of $5.0 million in capital expenditures. This compares to $27.4 million of cash flow from operating activities of continuing operations, or $24.4 million of free cash flow, net of $3.0 million in capital expenditures. During the first quarter, the company paid a regular quarterly dividend of $0.29 per share, with dividend payments totaling $6.2 million.

Enpro ended the first quarter with total debt of $786.8 million and cash of $336.1 million and $35.0 million of short-term liquid investments. Outstanding letters of credit totaled $10.8 million.

Quarterly Dividend

EnPro Industries, Inc. declared a regular quarterly dividend of $0.29 per share on April 28, 2023. The dividend is payable June 14, 2023 to shareholders of record as of the close of business on May 31, 2023.

2023 Guidance

EnPro Industries, Inc. continues to expect 2023 revenue growth in the flat-to-low single digits, adjusted EBITDA is in the range of $248 million to $260 million and adjusted diluted earnings per share in the range of $6.45 to $7.05 per share.

Conference Call, Webcast Information, and Presentations

Enpro will hold a conference call today, May 2, at 8:30 a.m. Eastern Time to discuss first quarter 2023 financial results. Investors who wish to participate in the call should dial 1-877-407-0832 approximately 10 minutes before the call begins and provide conference access code 13725737. A live audio webcast of the call and accompanying slide presentation will be accessible from the company’s website, https://www.enproindustries.com. To access the earnings presentation, log on to the webcast by clicking the link on the company’s home page.

Primary Segment Operating Performance Measure

The primary metric used by management to allocate resources and assess segment performance is adjusted segment EBITDA, which is segment revenue reduced by operating expenses and other costs identifiable with the segment, excluding acquisition and divestiture expenses, restructuring costs, impairment charges, non-controlling interest compensation, amortization of the fair value adjustment to acquisition date inventory, and depreciation and amortization. Expenses not directly attributable to the segments, corporate expenses, net interest expense, gains/losses related to the sale of assets, and income taxes are not included in the computation of adjusted segment EBITDA. Under U.S. generally accepted accounting principles (“GAAP”), the primary metric used by management to allocate resources and assess segment performance is required to be disclosed in financial statement footnotes, and accordingly such metric as presented for each segment is not deemed to be a non-GAAP measure under applicable regulations of the Securities and Exchange Commission.

Non-GAAP Financial Information

This press release contains financial measures that have not been prepared in conformity with GAAP. They include adjusted net income attributable to EnPro Industries, Inc., adjusted diluted earnings per share attributable to EnPro Industries, Inc., adjusted EBITDA, adjusted EBITDA margin, total adjusted segment EBITDA and free cash flow. Tables showing the reconciliation of these historical non-GAAP financial measures to the comparable GAAP measures are attached to the release. Adjusted EBITDA and adjusted diluted earnings per share anticipated for full year 2023 are calculated in a manner consistent with the historical presentation of these measures in the attached tables. Because of the forward-looking nature of these estimates, it is impractical to present quantitative reconciliations of such measures to comparable GAAP measures, and accordingly no such GAAP measures are being presented.

Management believes these non-GAAP metrics are commonly used financial measures for investors to evaluate the company’s operating performance and, when read in conjunction with the company’s consolidated financial statements, present a useful tool to evaluate the company’s ongoing operations and performance from period to period. In addition, these are some of the factors the company uses in internal evaluations of the overall performance of its businesses. Management acknowledges that there are many items that impact a company’s reported results and the adjustments reflected in these non-GAAP measures are not intended to present all items that may have impacted these results. In addition, these non-GAAP measures are not necessarily comparable to similarly titled measures used by other companies.

Forward-Looking Statements and Guidance

Statements in this press release that express a belief, expectation or intention, as well as those that are not historical fact, are forward-looking statements under the Private Securities Litigation Reform Act of 1995. They involve a number of risks and uncertainties that may cause actual events and results to differ materially from such forward-looking statements. These risks and uncertainties include, but are not limited to: economic conditions in the markets served by our businesses and the businesses of our customers, some of which are cyclical and experience periodic downturns; the impact of geopolitical activity on those markets, including instabilities associated with the armed conflict in Ukraine and any conflict or threat of conflict that may affect Taiwan; uncertainties with respect to the imposition of government embargoes, tariffs and trade protection measures, such as “anti-dumping” duties applicable to classes of products, and import or export licensing requirements, as well as the imposition of trade sanctions against a class of products imported from or sold and exported to, or the loss of “normal trade relations” status with, countries in which we conduct business, could significantly increase our cost of products or otherwise reduce our sales and harm our business; uncertainties with respect to the duration and severity of impacts from the COVID-19 pandemic on our operations, and the operations and businesses of our customers and vendors, including impacts on the general economy and the markets served by our customers, as well as supply chain disruptions and materials cost increases that are not passed along to our customers; uncertainties with respect to prices and availability of raw materials, including as a result of the COVID-19 pandemic or instabilities from geopolitical conflicts; uncertainties with respect to our ability to achieve anticipated growth within the semiconductor, life sciences, and other technology-enabled markets; the impact of fluctuations in relevant foreign currency exchange rates or unanticipated increases in applicable interest rates; unanticipated delays or problems in introducing new products; the impact of any labor disputes; announcements by competitors of new products, services or technological innovations; changes in our pricing policies or the pricing policies of our competitors; risks related to the reliance of our Advanced Surface Technologies segment on a small number of significant customers; uncertainties with respect to our ability to identify and complete business acquisitions consistent with our strategy and to successfully integrate any businesses that we acquire; and uncertainties with respect to the amount of any payments required to satisfy contingent liabilities, including those related to discontinued operations, other divested businesses and discontinued operations of our predecessors, including liabilities for certain products, environmental matters, employee benefit and statutory severance obligations and other matters. Enpro’s filings with the Securities and Exchange Commission, including its most recent Form 10-K, describe these and other risks and uncertainties in more detail. Enpro does not undertake to update any forward-looking statements made in this press release to reflect any change in management's expectations or any change in the assumptions or circumstances on which such statements are based.

Full-year guidance is subject to the risks and uncertainties discussed above and specifically excludes changes in the number of shares outstanding, impacts from future and pending acquisitions, dispositions and related transaction costs, restructuring costs, incremental impacts of tariffs and trade tensions on market demand and costs subsequent to March 31, 2023, and the impact of foreign exchange rate changes subsequent to that date.

About Enpro

Enpro is a leading industrial technology company focused on critical applications across many end-markets, including semiconductor, photonics, industrial process, aerospace, food and pharma and life sciences. Enpro is listed on the New York Stock Exchange under the symbol “NPO”. For more information about Enpro, visit the company’s website at http://www.enproindustries.com.

APPENDICES

Consolidated Financial Information and Reconciliations

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