News Release

Enpro Reports Strong Second Quarter 2021 Results; Increases Full-Year Guidance

Second Quarter 2021 Highlights

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

CHARLOTTE, N.C., August 3, 2021 -- EnPro Industries, Inc. (NYSE: NPO) today announced its financial results for the three and six months ended June 30, 2021.

“Our portfolio reshaping strategy, focus on organic growth drivers and cost discipline drove significantly improved operating leverage in the second quarter. We reported a strong adjusted EBITDA margin of 19.2%, a 400 basis point improvement compared to a year ago and 60 basis points sequentially,” said Eric Vaillancourt, Interim President and Chief Executive Officer. “We saw momentum across all businesses in the second quarter as the global economic recovery continued.”

Mr. Vaillancourt continued, “Performance was solid across all three segments. Growth continued at a brisk pace in Advanced Surface Technologies. We were pleased with the financial performance within Sealing Technologies, benefiting from portfolio reshaping actions taken over the last two years, in addition to strong sales growth.  Engineered Materials segment showed material profit improvement on strong sales growth. With a strong balance sheet, we have ample financial flexibility to invest in organic growth as well as pursue strategic acquisition opportunities.”

Financial Highlights

(Amounts in millions except per share data and percentages)

*See the attached schedules for adjustments and reconciliations to GAAP numbers

Second Quarter 2021 Consolidated Results

Sales of $298.6 million increased 20.9% compared to the second quarter of 2020 as we experienced growth across all segments. By end market, we saw positive momentum in the general industrial, food & pharma, heavy-duty truck, semiconductor, automotive, petrochemical, and oil & gas markets, as well as the contribution from Alluxa, partially offset by weakness in power generation and aerospace markets. Excluding the impact of foreign currency exchange translation and acquired and divested businesses, sales for the quarter grew 27.1% compared to the second quarter of 2020.

Corporate expenses of $12.8 million in the second quarter of 2021 increased from $7.1 million a year ago. The increase was driven primarily by higher incentive compensation accruals reflecting the higher year-over-year performance.

Income from continuing operations attributable to EnPro Industries, Inc. was $29.3 million, compared to a loss of $3.3 million in the prior-year period. Adjusted income from continuing operations attributable to EnPro Industries, Inc. of $32.4 million increased 80.0% compared to the second quarter of 2020. Diluted earnings per share attributable to EnPro Industries, Inc. continuing operations was $1.41, compared to $(0.16) in the prior-year period and adjusted diluted earnings per share was $1.56, compared to $0.88 in the prior-year period, an increase of 77.3%.

Adjusted EBITDA of $57.2 million increased 52.5% compared to the prior-year period driven primarily by higher operating leverage from strong organic sales growth, the addition of Alluxa and favorable pricing, partially offset by increased raw material costs and higher incentive compensation accruals. Adjusted EBITDA margin of 19.2% increased 400 basis points compared to the prior-year period.

Second Quarter 2021 Segment Highlights

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

Includes Garlock, STEMCO, and Technetics Group (excluding Technetics Semi) businesses

Includes Technetics Semi, LeanTeq, and Alluxa businesses

Includes GGB and CPI businesses

Balance Sheet, Cash Flow and Capital Allocation

The company generated $58.5 million of cash flow from continuing operations during the six months ended June 30, 2021 and $48.3 million of free cash flow, net of $10.2 million in capital expenditures. This compares to $33.4 million of cash flow from continuing operations, or $24.5 million of free cash flow, net of $8.9 million in capital expenditures, in the prior-year period. The year-over-year change was driven primarily by higher operating profits, despite working capital investments to meet strong demand. During the second quarter, the company paid a regular quarterly dividend of $0.27 per share, totaling $11.3 million, for the first half of 2021.

Enpro ended the second quarter with cash of $261.9 million and full availability of a $400 million revolving credit facility, less $11.4 million in outstanding letters of credit. The company’s net debt to adjusted EBITDA ratio was 1.1x on June 30, 2021.

2021 Guidance

“Given our strong first half 2021 results and current order patterns, we now expect 2021 sales to be in the range of $1.075 billion to $1.125 billion, adjusted EBITDA to be in the range of $200 million to $210 million, and adjusted diluted earnings per share from continuing operations to be in the range of $5.16 to $5.50,” said Mr. Vaillancourt.

 

Conference Call, Webcast Information, and Presentations

Enpro will hold a conference call today, August 3, at 8:30 a.m. Eastern Time to discuss second quarter 2021 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 13714136. 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 to 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 2021 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: impacts from the COVID-19 pandemic and governmental responses to limit the further spread of COVID-19, including impacts on the company’s operations, and the operations and businesses of its customers and vendors, including whether the company’s operations and those of its customers and vendors will continue to be treated as “essential” operations under government orders restricting business activities or, even if so treated, whether site-specific health and safety concerns might otherwise require certain operations to be halted for some period of time; uncertainty with respect to the duration and severity of these impacts from the COVID-19 pandemic, including impacts on the general economy and the markets served by the company’s customers, including international markets that may not recover at the same pace as markets in the United States; the extent to which the impacts from the COVID-19 pandemic could result in a reduction in demand for the company’s products and services, which could also result in asset impairment charges, including for goodwill; other 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, such as disruptions in the pricing of oil and gas; prices and availability of its raw materials; 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; unanticipated delays or problems in introducing new products; 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 related to discontinued operations and the discontinued operations of its predecessors, including liabilities for certain products, environmental matters, employee benefit obligations and other matters. Enpro’s filings with the Securities and Exchange Commission, including its most recent Form 10-K and Form 10-Q, 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 excludes changes in the number of shares outstanding, impacts from future acquisitions, dispositions and related transaction costs, restructuring costs, incremental impacts of tariffs and trade tensions on market demand and costs subsequent to the end of the second quarter, the impact of foreign exchange rate changes subsequent to the end of the second quarter, impacts from further spread of COVID-19, and environmental and litigation charges.

About Enpro

Enpro is a leading industrial technology company using materials science to push boundaries in semiconductor, life sciences, and other technology-enabled sectors. For more information about Enpro, visit the company’s website at http://www.enproindustries.com.

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APPENDICES

Consolidated Financial Information and Reconciliations

Adjusted Segment EBITDA is total segment revenue reduced by operating expenses and other costs identifiable with the segment, excluding acquisition and divestiture expenses, restructuring and impairment expense, non-controlling interest compensation, amortization of the fair value adjustment to acquisition date inventory, and depreciation and amortization.

Corporate expenses include general corporate administrative costs.  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.  The accounting policies of the reportable segments are the same as those for the Company.

¹Non-controlling interest compensation allocation represents compensation expense associated with a portion of the rollover equity from the acquisitions of LeanTeq and Alluxa that is subject to reduction for certain types of employment terminations of the LeanTeq and Alluxa sellers and is directly related to the terms of the respective acquisitions. This expense will continue to be recognized as compensation expense over the term of the put and call options associated with the acquisitions unless certain employment terminations have occurred.

¹ Non-controlling interest compensation allocation represents compensation expense associated with a portion of the rollover equity from the acquisitions of LeanTeq and Alluxa that is subject to reduction for certain types of employment terminations of the LeanTeq and Alluxa sellers and is directly related to the terms of the respective acquisitions. This expense will continue to be recognized as compensation expense over the term of the put and call options associated with the acquisitions unless certain employment terminations have occurred.

Management of the Company believes that it would be helpful to the readers of the financial statements to understand the impact of certain selected items on the Company’s reported income from continuing operations attributable to EnPro Industries, Inc. and diluted earnings per share attributable to EnPro Industries, Inc., including items that may recur from time to time.  The items adjusted for in this schedule are those that are excluded by management in budgeting or projecting for performance in future periods, as they typically relate to events specific to the period in which they occur. This presentation enables readers to better compare EnPro Industries, Inc. to other diversified industrial manufacturing companies that do not incur the sporadic impact of restructuring activities, costs associated with previously disposed of businesses, acquisitions and divestitures, or other selected items.

 

Management acknowledges that there are many items that impact a company’s reported results and this list is not intended to present all items that may have impacted these results.

 

Other adjustments are included in selling, general, and administrative, cost of sales, and other operating expenses on the consolidated statements of operations.

 

The adjusted income tax expense presented above is calculated using a normalized company-wide effective tax rate excluding discrete items of 30.0% for continuing operations.  Per share amounts were calculated by dividing by the weighted-average shares of diluted common stock outstanding during the periods.

 

¹ Non-controlling interest compensation allocation represents compensation expense associated with a portion of the rollover equity from the acquisitions of LeanTeq and Alluxa that is subject to reduction for certain types of employment terminations of the LeanTeq and Alluxa sellers and is directly related to the terms of the respective acquisitions. This expense will continue to be recognized as compensation expense over the term of the put and call options associated with the acquisitions unless certain employment terminations have occurred.

 

² Adjusted diluted earnings per share.

 

³ There were 0.1 million potentially dilutive shares that were excluded from the computation of diluted earnings per share for the quarter ended June 30, 2020 because they were antidilutive. These shares were included in the computation of adjusted diluted earnings per share for that period.

¹ Non-controlling interest compensation allocation represents compensation expense associated with a portion of the rollover equity from the acquisitions of LeanTeq and Alluxa that is subject to reduction for certain types of employment terminations of the LeanTeq and Alluxa sellers and is directly related to the terms of the respective acquisitions. This expense will continue to be recognized as compensation expense over the term of the put and call options associated with the acquisitions unless certain employment terminations have occurred.

Supplemental disclosure: Adjusted EBITDA as presented also represents the amount defined as “EBITDA” under the indenture governing the Company’s 5.75% Senior Notes due 2026. For the six months ended June 30, 2021, approximately 65% of the adjusted EBITDA  as presented above was attributable to Enpro’s subsidiaries that do not guarantee the Company’s 5.75% Senior Notes due 2026.