Enpro Reports Second Quarter 2024 Results

Reports Strong Quarter; Narrows Earnings Guidance Range for Full Year 2024

Second Quarter 2024 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 of historical measures to GAAP measures)

• Sales of $271.9 million down 1.8%; organic sales down 5.0%
• GAAP income from continuing operations attributable to Enpro Inc., net of tax of $26.7 million compared to a loss of $18.6 million
• Adjusted EBITDA* up 14.0% to $74.0 million; adjusted EBITDA margin* up 380 bps to 27.2%
• Continued strong performance in Sealing Technologies and sequential improvement in sales and adjusted segment EBITDA in Advanced Surface Technologies ("AST")
• GAAP diluted earnings per share from continuing operations of $1.27, compared to diluted loss per share of $0.89
• Adjusted diluted earnings per share* from continuing operations up 13.7% to $2.08 versus $1.83
• Narrows full year 2024 earnings guidance for adjusted EBITDA to the range of $260 to $270 million and adjusted diluted earnings per share guidance to the range of $7.00 to $7.60. Adjusts full year 2024 revenue guidance to be approximately flat

Enpro Inc. (NYSE: NPO) today announced its financial results for the quarter and six months ended June 30, 2024.

“Enpro delivered strong performance in the second quarter, headlined by record profitability in Sealing Technologies. In Advanced Surface Technologies, we saw sequential improvement in segment revenue and adjusted segment EBITDA. For the remainder of the year, while we still expect sequential improvement in AST, we now expect the magnitude of recovery in semiconductor capital equipment spending to be more gradual,” said Eric Vaillancourt, President and Chief Executive Officer. "I am confident that as market dynamics improve in AST, we are well-positioned to drive profitable growth and deliver enhanced value for our shareholders.”

Mr. Vaillancourt added, “Once again, we have demonstrated the resiliency of Enpro’s differentiated portfolio and business model as we continue to invest in growth and operational improvement initiatives across the business. The strength of our balance sheet provides us with ample flexibility to continue investing across the company to capitalize on organic growth opportunities, while pursing strategic acquisitions that complement our best-in-class portfolio."

Second Quarter 2024 Consolidated Results

Sales of $271.9 million decreased 1.8% compared to last year. Excluding the impacts of the AMI acquisition and foreign exchange translation, sales declined 5.0% year-over-year. Slower semiconductor markets, as well as weaker demand in commercial vehicle OEM and general industrial in Asia, more than offset the contribution from strategic pricing actions and strength in nuclear and aerospace markets. Stability and growth in the company's aftermarket products and recurring solutions across both segments contributed positively during the quarter.

Corporate expense of $10.5 million in the second quarter of 2024 decreased from $15.6 million in the second quarter of 2023. Last year, corporate expense was unfavorably impacted by approximately $4 million due to mark-to-market valuation of awards under long-term equity incentive plans, compared to a favorable impact of approximately $1 million in the current quarter. Changes to the structure of the incentive plans initiated in 2023 mitigate the volatility of corporate expenses due to share price performance.

Income from continuing operations attributable to Enpro Inc., net of tax was $26.7 million, compared to a loss of $18.6 million in the prior-year period. Diluted earnings per share was $1.27, compared to a loss of $0.89 in the prior year. The year-over-year increase was driven primarily by operating performance in Sealing Technologies, lower corporate expense and the non-recurrence of a non-cash goodwill impairment charge taken last year.

Adjusted net income from continuing operations* of $43.9 million increased 14.9% compared to the second quarter of 2023 and adjusted diluted earnings per share* increased 13.7% to $2.08, compared to $1.83 in the prior-year period.

Adjusted EBITDA* of $74.0 million, or 27.2% of total sales, increased 14.0% compared to the prior-year period driven primarily by strong results in the Sealing Technologies segment and lower corporate expense.

Second Quarter 2024 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 4.1% versus the prior-year period. Excluding the addition of AMI and foreign exchange translation, sales decreased 0.8% as weaker demand in commercial vehicle OEM and general industrial in Asia was offset in part by strategic pricing actions, strength in nuclear and aerospace, and a slight improvement in sales in food and pharma.
• Adjusted segment EBITDA of $65.4 million was up 16.2% year-over-year, with adjusted segment EBITDA margin expanding approximately 360 basis points. Excluding the impacts of the acquisition and foreign exchange translation, adjusted segment EBITDA increased 7.3%. The increase was driven primarily by favorable mix, strategic pricing actions and effective cost management.

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 12.2% versus the prior-year period driven primarily by current semiconductor market conditions.
• Adjusted segment EBITDA decreased 20.7% versus the prior-year period and adjusted segment EBITDA margin declined by 230 basis points, driven primarily by the decline in volume.

Balance Sheet, Cash Flow and Capital Allocation

During the six months ended June 30, 2024, the company generated $49.5 million of cash flow from operating activities of continuing operations and $35.5 million of free cash flow, net of $14.0 million in capital expenditures. This compares to $78.5 million of cash flow from operating activities of continuing operations, or $66.5 million of free cash flow, net of $12.0 million in capital expenditures in the prior year. During the second quarter, the company paid a regular quarterly dividend of $0.30 per share, with dividend payments totaling $12.7 million for the six months ended June 30, 2024.

Enpro ended the second quarter with total debt of $661.5 million and cash and cash equivalents of $175.9 million.

Quarterly Dividend

Enpro declared a regular quarterly dividend of $0.30 per share on August 1, 2024. The dividend is payable on September 18, 2024 to shareholders of record as of the close of business on September 4, 2024.

2024 Guidance

Enpro now expects 2024 revenue to be approximately flat with 2023, versus prior guidance of low-to-mid single- digit growth. Expected adjusted EBITDA and adjusted diluted earnings per share for 2024 are now expected to be in the ranges of $260 million to $270 million and $7.00 to $7.60, respectively, versus the company’s prior view of $260 million to $280 million and $7.00 to $7.80, respectively.

Conference Call, Webcast Information, and Presentations

Enpro will hold a conference call today, August 6, at 8:30 a.m. Eastern Time to discuss second quarter 2024 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 13735651. A live audio webcast of the call and accompanying slide presentation will be accessible from the company’s website, https://www.enpro.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. Segment non-operating expenses and income, corporate expenses, net interest expense, 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, adjusted diluted earnings per share, 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 2024 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, including the 2024 guidance and other statements 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 the company’s businesses and the businesses of its customers, some of which are cyclical and experience periodic downturns; the impact of geopolitical activity on those markets, including instabilities associated with the armed conflicts in Ukraine and in the Middle East region 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 the company conducts business, could significantly increase the company’s cost of products or otherwise reduce its sales and harm its business; uncertainties with respect to prices and availability of raw materials, including as a result of 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, including uncertainties with respect to receipt of CHIPS Act support and the timing of completion of the new Arizona facility; 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 the company’s pricing policies or the pricing policies of its competitors; risks related to the reliance of the Advanced Surface Technologies segment on a small number of significant customers; uncertainties with respect to the company’s ability to identify and complete business acquisitions consistent with its strategy and to successfully integrate any businesses that it acquires; 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 the company’s 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 and Form 10-Q reports, 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, changes in long-term compensation expense due to changes in the company’s common stock price, 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, and the impact of changes in foreign exchange rates, in each case subsequent to June 30, 2024.

About Enpro Inc.

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

APPENDICES

Consolidated Financial Information and Reconciliations

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