Enpro Reports Fourth Quarter and Full Year 2022 Results, Introduces 2023 Guidance

Fourth Quarter and Full Year 2022 Highlights

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

• For the quarter, sales of $271.9 million increased 27.8% and organic sales increased 14.8%; for the year, sales of $1.10 billion increased 30.8% and organic sales increased 14.1%
• For the quarter, loss from continuing operations attributable to EnPro Industries, Inc. was $57.5 million, compared to a loss of $1.6 million, driven by a non-cash goodwill impairment charge; for the year, income from continuing operations was $6.7 million, compared to income of $56.9 million
• For the quarter, adjusted EBITDA* increased 39.4% to $53.4 million and adjusted EBITDA margin* increased 160 bps to 19.6%; for the year, adjusted EBITDA* increased 58.5% to $257.4 million and adjusted EBITDA margin* increased 410 bps to 23.4%
• For the quarter, diluted loss per share from continuing operations attributable to EnPro Industries, Inc. was $(2.76), compared to a diluted loss per share of ($0.08), driven by a non-cash goodwill impairment charge; for the year, diluted earnings per share from continuing operations was $0.32, compared to a diluted earnings per share of $2.74
• For the quarter, adjusted diluted earnings per share* increased 48.5% to $1.47 versus $0.99; for the year, adjusted diluted earnings per share* increased 62.2% to $7.04 in 2022 versus $4.34
• Completed the divestiture of GGB for $305 million in November. Subsequent to quarter-end, in late January, the divestiture of GPT closed, completing the divestiture portion of the company's portfolio optimization strategy
• Net leverage ratio of 1.8x entering 2023 provides ample financial flexibility to pursue future organic and inorganic investments
• Introduces guidance for 2023: revenue growth in the flat-to-low single digits, adjusted EBITDA* in the range of $248 million to $260 million, and adjusted diluted earnings per share from continuing operations* of $6.45 to $7.05

EnPro Industries, Inc. (NYSE: NPO) today announced its financial results for the three months and year ended December 31, 2022.

"Enpro had an outstanding 2022 driven by our team's continued excellent execution and the resilience of our operating model. Our optimized portfolio delivered strong revenue growth and margin expansion in excess of 400 basis points for the year, as our teams demonstrated agility to deliver for our customers in the face of continued macroeconomic uncertainty," said Eric Vaillancourt, President and Chief Executive Officer. “2022 was a milestone year for Enpro as we completed the divestiture portion of our portfolio reshaping strategy with the exit of the Engineered Materials segment. We are moving forward with a strong foundation of high-margin businesses in secular growth markets that position us for continued profitable growth and value creation."

Mr. Vaillancourt continued, “We are well positioned to build on the progress achieved in 2022 by continuing to execute on our strategic pillars. Our teams are motivated to outperform in a challenging economic environment by focusing on enhancing our portfolio with innovative solutions and investing in long-term growth opportunities to drive profitability. We remain focused on leveraging our strong balance sheet to invest, both organically and inorganically, in high-growth, high-margin areas that build on our robust foundation as we execute on our proven strategic framework to drive the company forward."

*Non-GAAP measure. See the attached schedules for adjustments and reconciliations of historical non-GAAP measures to GAAP measures. No reconciliation is presented for the 2023 guidance range of adjusted EBITDA and adjusted diluted earnings per share from continuing operations. Because of the forward-looking nature of these estimates, it is impractical to present quantitative reconciliations of such measures to comparable GAAP measures.

Fourth Quarter 2022 Consolidated Results of Continuing Operations

Sales of $271.9 million increased 27.8% compared to the fourth quarter of 2021. The company saw strong demand in most major end markets in the fourth quarter with successful pricing strategies contributing to total revenue growth. Excluding the impact of acquired and divested businesses and foreign currency exchange translation, organic sales for the quarter grew 14.8% compared to the fourth quarter of 2021.

Corporate expenses of $15.6 million in the fourth quarter of 2022 were down from $27.8 million a year ago driven primarily by the reduction in acquisition related expenses associated with the NxEdge transaction, even though incentive compensation expenses, mainly driven by share price performance during the quarter, increased corporate expense by $2.4 million.

Loss from continuing operations attributable to EnPro Industries, Inc. was $57.5 million, compared to a loss of $1.6 million in the prior-year period, driven by the non-cash goodwill impairment charge detailed below. Adjusted income from continuing operations attributable to EnPro Industries, Inc. of $30.8 million increased 49.5% compared to the fourth quarter of 2021. Diluted loss per share attributable to EnPro Industries, Inc. continuing operations was $(2.76), compared to a diluted loss per share of ($0.08) in the prior-year period, and adjusted diluted earnings per share* of $1.47 increased 48.5% from the prior-year period.

Adjusted EBITDA margin* of 19.6% increased 160 basis points compared to the prior-year period driven primarily by year-over-year volume growth, strategic pricing actions and operational efficiencies, partially offset by the continuation of inflationary raw material, freight and labor costs and late-quarter weakness in semiconductor equipment demand that adversely impacted results in the Advanced Surface Technologies segment.

Fourth Quarter 2022 Segment Highlights of Continuing Operations

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

Garlock, STEMCO, and Technetics Group

• Sales increased 9.0% versus the prior-year period. Excluding the impact of foreign exchange translation and divested businesses, sales increased 13.4% versus the prior-year period, driven by successful pricing strategies and strong volume in the aerospace, general industrial, heavy-duty truck and food & pharma markets.
• Adjusted segment EBITDA increased 32.3% versus the prior-year period. Operating leverage on volume growth, strategic pricing, net of inflationary pressures, and operational efficiencies drove the increase. Excluding the impact of foreign exchange translation and divestitures, adjusted segment EBITDA increased 38.7% compared to the prior-year period.

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

• Sales increased 67.0% versus the prior-year period driven by the acquisition of NxEdge and strong demand in the semiconductor market, even as softness in semiconductor equipment demand appeared late in the fourth quarter. Excluding the acquisition and the impact of foreign exchange translation, sales increased 17.5% versus the prior-year period.
• Adjusted segment EBITDA increased 38.3% versus the prior-year period, driven primarily by the acquisition of NxEdge, as well as strong organic sales growth, offset by the impact of late-quarter softness that adversely affected product mix. Excluding the acquisition and impact of foreign exchange translation, adjusted segment EBITDA increased 10.0% compared to the prior-year period, reflecting the aforementioned late-quarter softness, higher year-over-year operating costs and continued investments supporting long-term growth.

Full Year 2022 Consolidated Results

Sales of $1.10 billion increased 30.8% compared to 2021. On an organic basis, sales grew 14.1% year-over-year. driven by effective pricing and strong demand in most markets.

Corporate expenses for 2022 of $47.0 million decreased $17.9 million compared to 2021. The decrease was driven primarily by the reduction in acquisition and divestiture costs.

Income from continuing operations attributable to EnPro Industries, Inc. was $6.7 million, compared to $56.9 million in the prior year, driven by the non-cash goodwill impairment charge detailed below. Adjusted income from continuing operations attributable to EnPro Industries, Inc. of $146.8 million increased 62.9% compared to 2021. Diluted earnings per share attributable to EnPro Industries, Inc. continuing operations was $0.32, compared to diluted earnings per share of $2.74 in the prior year and adjusted diluted earnings per share* was $7.04, compared to $4.34 in the prior year, an increase of 62.2%.

Adjusted EBITDA* of $257.4 million increased 58.5% compared to 2021. Adjusted EBITDA margin* of 23.4% increased 410 basis points compared to the prior year driven primarily by volume increases, strategic pricing actions, operational efficiencies and the sustained benefits from portfolio optimization initiatives, partially offset by inflationary pressures.

Balance Sheet, Cash Flow and Capital Allocation

The company generated $106.1 million of cash flow from continuing operations during the year ended December 31, 2022 and $76.7 million of free cash flow, net of $29.4 million in capital expenditures. This compares to $124.1 million of cash flow from continuing operations and $109.2 million of free cash flow, net of $14.9 million in capital expenditures, in the prior-year period. During the fourth quarter, the company paid a regular quarterly dividend of $0.28 per share, with dividends totaling $23.4 million for the year ended December 31, 2022.

Enpro ended the fourth quarter with cash of $334.4 million and full availability under its revolving credit facility. The company exited 2022 with a net leverage ratio of 1.8x, which provides the organization ample financial flexibility to pursue both organic and inorganic growth opportunities.

Goodwill Impairment Analysis

In November 2022, during regular annual impairment testing, the projection of Alluxa’s current expected cash flows were below previously assessed estimates, and the discount rate to determine fair value was significantly higher. The projection and analysis indicated that the book value of the Alluxa reporting unit, which was acquired in the fourth quarter of 2020, exceeded fair value by $65.2 million, which has been recognized as an impairment charge in the fourth quarter of 2022. The discount rate to determine the fair value of Alluxa increased from 12.0% as of November 1, 2021 to 14.6% as of November 1, 2022, resulting in a $50 million decline in the fair value of the Alluxa reporting unit utilizing the income approach.

Quarterly Dividend

On February 16, EnPro Industries, Inc. increased its quarterly dividend 4% to $0.29 per share from $0.28 per share previously. The dividend is payable on March 15, 2023 to shareholders of record as of the close of business on March 1, 2023.

2023 Guidance

The company expects 2023 revenue growth to be in the range of flat to low-single digits, adjusted EBITDA* to be in the range of $248 million to $260 million and adjusted diluted earnings per share* from continuing operations to be in the range of $6.45 to $7.05.

Conference Call, Webcast Information, and Presentations

Enpro will hold a conference call today, February 21, 2023, at 8:30 a.m. Eastern Time to discuss fourth quarter and full year 2022 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 ID number 13725736. 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 income from continuing operations 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 Enpro’s businesses and those of its customers, some of which are cyclical and experience periodic downturns and disruptions; 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 Enpro conducts business, which could significantly increase its cost of products or otherwise reduce sales and harm its business; uncertainty with respect to the duration and severity of impacts from the COVID-19 pandemic on the company’s operations, and the operations and businesses of its customers and vendors, including impacts on the general economy and the markets served by the company’s customers, as well as supply chain disruptions and materials cost increases that are not passed along to our customers; prices and availability of its raw materials, including as a result of the COVID-19 pandemic or instabilities from geopolitical conflicts; uncertainties with respect to the company’s 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 pricing policies or the pricing policies of competitors; and the amount of any payments required to satisfy contingent liabilities, including those related to discontinued operations, other divested businesses and the discontinued operations of its 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 December 31, 2022, 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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