Q2 2022 EnPro Industries Inc Earnings Call
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Greetings and welcome to NPro Industries 2nd quarter 2022 earnings conference call.
At this time, all participants are in a listen-only mode.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, James Chintilly, Vice President, investor relations. Thank you, you may begin.
Thanks, Doug. Good morning and welcome to NPRO second quarter 2022 earnings conference call. I will remind you that our call is being webcast at nproindustries.com where you can find the presentation that accompanies this call. With me today is Eric Valencourt, our president and chief executive officer and Milt Childress, executive vice president and chief financial officer.
Before we begin today's discussion, a friendly reminder that we will be making statements on this call that are not historical facts and that are considered forward-looking in nature. These statements involve a number of risks and uncertainties, including impacts from the pandemic and related governmental responses and their impact on the general economy, as well as other risks and uncertainties that are described in our filings with the SEC, including our most recent Form 10-K and Form 10-Q . Also during the call, we will reference a number of non-GAAP financial measures.
Tables reconciling these measures to the comparable GAT measures are included in the appendix to the presentation materials. We do not undertake any obligation to update these forward-looking statements.
Also, note during this call we will be providing full year guidance which excludes changes in the number of shares outstanding, impacts from future acquisitions, dispositions and related transaction costs, restructuring costs, incremental impacts of inflation, geopolitical variables 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, interest rate increases differing from assumptions out
and geo-political environment.
Now on to our second quarter highlights.
We delivered another strong quarter driven by continued organic growth and operating leverage across all three business segments.
In the second quarter, sales of $333.3 million increased 11.6% year-over-year, while organic sales growth of 9.5%.
about half of which was volume and other half trice.
Our reported revenue growth was driven by solid demand in most of our end markets, the benefits from our strategic Pricing action and the addition of next best which more than offset divestiture is completed last year
With inflation at 40-year-ides, we have been nimble in our pricing initiatives, which in most cases offset rising raw material cost and wage inflation during the effective quarter.
Had thought to our supply chain, commercial excellence teams, or terrific execution in the difficult environment, we thank you for your hard work.
Our second quarter adjusted EBITDA of 82 million increased 43.4% year over year and we achieved a record adjusted EBITDA margin of 24.6% at 540 basis point improvement from the prior year.
Our margin expansion was driven primarily by the addition of next-edge, divestiture of lower margin businesses, and operating leverage on organic growth, including strategic pricing initiatives.
This is the second quarter in a row. We have exceeded 20% of the judgment of margins at first in our history.
Our strong momentum is a testament for the success of our transformation initiatives over the past several years.
As you may remember, we finished 2019 with a 14% adjusted even in margin.
Three short years later, the midpoint of our increased guidance range implies an adjusted leave-in margin in excess of 20% for 2022.
We are proud of what we have achieved in reshaping our portfolio of businesses while solidifying our position as a leading-edge industrial technology company.
Our agile operating model has been a constant in our portfolio transformation, allowing us to continue to drive growth even in this challenging environment.
A quick update on Next Edge.
our most recent strategic acquisition.
In the early going, next edge is more than meeting our expectations.
as the teams are integrating seamlessly into the advanced surface technology segment.
We are very pleased with the technological capabilities and process to know how the next section is brought to our customers and to our organization.
Our strong results continue to reflect the sustainable benefits of our strategy as we lean into our best growth opportunities while maintaining cost efficiency and purpose throughout and throughout.
We will continue to invest both organically and through strategic M&A in faster growing markets where we have competitive advantages while maintaining robust aftermarket and recurring revenue streams across our portfolio.
Our performance and discipline approach to capital allocation is translating into significant value for UNDRO stakeholders, and we are confident that we are well positioned to build on this momentum.
Now it will turn the call for the milk for a deeper diving or financial results, the second quarter. No.
Thanks Eric.
As Eric noted, our second-court performance was robust. Despite the persistent headwinds we and many others continue to face.
As reported, second quarter sales of $333.3 million increased 11.6% year over year. Positive momentum in the semiconductor, our generation aerospace and food and farm market.
as well as the contribution from NexEdge more than offset the reduction in sales through the last year's divestitures and softness in European automotive market.
Organic sales recorder increased 9.5% compared to the second quarter of 2021 as a result of both volume increases in pricing initiatives.
Adjusted EBITDA of $82 million increased 43.4% over the prior year period, driven primarily by the addition of Next Edge and organic growth, including the impact of pricing initiatives.
Partially offset by the impact of the best materials completed in 2021 Inflationary raw material costs and rising labor and travel expenses
In addition, adjusted EBITDA in the second quarter was positively impacted by a $2.8 million foreign exchange benefit from revaluation gains primarily on foreign cash balances due to a strengthening dollar and a $2.5 million reduction in incentive compensation accruals due mainly to the share price decline experienced during the second quarter.
Year-to-date re-valuation gains from the strawberry U.S. dollar total of $4.5 million and share price related incentive compensation reversals equal $3 million.
Second quarter adjusted even die margin of 24.6%, expanded 540 basis points year over year.
excluding the impact of foreign exchange translation and currency related re-daluation of foreign cash balances. re-daluation of foreign cash balances.
and the share price driven incentive accrual changes in both periods.
Adjusted even the large and expanded 370 basis points over prior year.
Corporate expenses of $9.5 million in the second quarter decreased from $12.8 million a year ago, driven primarily by the reduction in share price related incentive compensation accruals that I just covered.
Adjusted Deliterated Earnings per share of $2.32 increased 49% compared to the prior year period, driven by growth in operating earnings offset in part by higher interest expenses compared to last year.
Moving to a discussion of segment performance.
Stealing technology sales of $155.9 million decreased 4.1% versus the second world last year. As a result of the vestiture of polymer components business completed in September 2021.
Organic sales grew 6.3% year over year.
Strategic pricing initiatives and strong demand and power generation, food and farm and aerospace markets were the primary drivers of our quarterly performance in the segment.
Adjusted to so many to adopt a $42.5 million was essentially flat compared to the prior year period. Due to the divest of the power of the components of business.
Excluding the divestiture and foreign exchange translation, adjusted segment in the doc increased 10%.
Adjusted segment even down margin expanded 120 basis points to 27.3%. Driven by the pressure impact and by leverage on organic growth, including strategic pricing that more than offset in place to pressure on raw material and labor costs. twenty suddenly approximately 149.8 million from the bank view at the request of the company. Start with hour 8 and 2.88 for the end of timing. Det ?????? wie Besie und Daytonifiable mega 30624 foratt on masa foratt 346 400 325 probably 1 Ach können 23 granting 2224 2029 pediatric dried od v j ri 429 forager 2427
Turning it out to advanced surface technologies.
Second quarter sales of $121.5 million, more than doubled from the prior year. Driven by the acquisition of X-Edge continue strong demand in the semiconductor market.
Organic sales increased 19.1% versus the prior year period.
Adjusted segment EBITDA increased more than 140% to $37.8 million compared to the second quarter of last year, driven primarily by the Next Edge acquisition and strong organic sales growth.
Excluding the impact of the NEXED and foreign exchange translation, adjusted segment EBITDA increased 33.3%, reflecting strong operating leverage and an improved NEX compared to a year ago.
Our growth investments supporting semiconductor supply chain development in the United States continue as we've discussed on previous calls. And we are encouraged by the long-term growth picture in our advanced surface technology segment.
and engineer materials.
Second quarter sales of $56.5 million decreased 29.4% compared to the prior year, resulting from the CPI's vestiture completed in December 2001.
Organic sales for the quarter increased 7.6%, driven by strength in aerospace, oil and gas, and domestic automotive markets.
which more than offset weakness in the European automotive market and COVID-related lockdowns in China.
Second quarter adjusted segment need to die decreased 26.9% over the prior year period as a result of the CPI divestiture.
excluding the impact of the divestiture and foreign exchange translation, adjusted EBITDOT increased 13.6% compared to the prior year, reflecting organic sales growth, including pricing initiatives and cost management.
Turning to the ballot sheet in cash flow.
In the first half of the year, we reduced borrowings by $136 million, finishing the second quarter with $991 million in total debt and cash of $222 million.
During the second quarter, we repatriated a total of $76 million in cash, bringing our year-to-date total repatriation to $119 million.
We expect to repatriate another $100 million by year end.
At June 30, we had $294 million available for borrowing under our evolving credit facility.
Our balance sheet remains a healthy position, and we have ample financial flexibility to execute against our strategic growth initiatives.
Freak-ass flow for the first six months of 2022 was $59 million, up from $48 million in the prior year, driven primarily by high operating profits and lower capital expenditures.
During the second quarter, we paid a 28 cents per share quarterly dividend for the first six months of the year. Cash for dividend payments totaled $11.7 million.
Moving now to our 2022 guidance.
Taking into consideration all the factors that we know at this time, including current, underlined demand, and order patterns.
We now expect low to mid double digit revenue growth over our reported 2021 sales of $1.14 billion.
We are raising our adjusted e-dog guidance to a range of $270 million to $280 million.
but for our previous guidance of 263 million to $275 million.
Further, reflecting the increase in our adjusted EBITDAILDUC, we now expect adjusted diluted earnings per share from continuing operations to be in the range of $6.80, to $7.30 using a normalized 27% tax rate. The $7.30 using a normalized 27% tax rate.
As noted in my earlier remarks, our strong first half adjusted EBITDA then affidened from currency related revaluation on foreign cash balances and a curable reduction related to the share price decline.
Excluding these impacts, we forecast adjusted EBITDA to be modestly lower in the second half compared to the first half. Reflecting ongoing supply chain constraints.
Normal, third quarter seasonality largely in our European exposed businesses and currency translation headwinds.
Overall, we are very pleased with our performance and encouraged by the outlook in this uncertain environment, as backlog and order patterns remain constructed.
Now turn the call back there, we're closing comments.
Thank you, Noel. Our performance demonstrates our team's ability to successfully execute our strategic, financial, commercial and operational objectives. The organization's ability to execute our strategic, and to achieve our strategic goals. Our team's ability to execute our strategic, financial, commercial and operational objectives. Our team's ability to execute our strategic,
We are focused on building upon our differentiated and high performance culture to deliver results in any environment.
We are committed to fostering a workplace that supports both physical, mental, health and safety of our team. They can do what they do best. Offer customer submission and critical, leading edge products and solutions that safeguard critical environments, improve processes in a variety of secular growth markets. We can improve processes in a variety of secular growth markets.
Our team's performance was rooted not only in an operating model, but in our culture that revolves around our values of safety, excellence, respect, and our commitment to sustainability and diversity.
I am proud of how colleagues across the organization embrace our cultures and values and prioritize our business performance alongside personal professional development.
By doing so, they are creating value for Amcrow stakeholders, including our shareholders, and the costumer of the community.
We greatly appreciate your interest in Engro, our company has positioned well to execute even in an uncertain market. Now open the line to question.
Thank you. Ladies and gentlemen, at this time we will be conducting a question-and-answer session.
If you'd like to ask your question, you may press star one on your telephone t-pad. A confirmation tunnel indicate your line is in the question two. You may press star two if you would like to remove your question from the queue.
for participants using speaker equipment and maybe necessary to pick up your handset before pressing the start key.
Our first question comes from the line of Jeff Hammond with Key Bank Capital. Please proceed with your question.
Hey good morning guys.
Yeah.
Just any aberrations in the ceiling margin, you know, obviously very good performance, is that really just, you know, truck pricing coming through in the timing there or maybe just elaborate, thanks.
I'll opt for some comments in the term there, talked a little bit about trekking. Jeff, a big driver for us in the quarter, was the results we saw in power generation and aerospace that's in our haematallic, metallic ceiling, part of ceiling technologies. We had significant organic growth, volume growth, and chemotherapy Tesla virus system produced at that day.
I don't know, all cylinders. So that was the primary driver. I mean, there were other drivers, but...
When we looked at margin, that's the segment that's been part of it. I can just say that it's overall good performance throughout the whole tune segment. And in tracking, we talked about impact or some that, and in particular, we all catch up to price. And I think we caught the price now, and so you're seeing the impact of that flow through the system. And also some of the backlog has been shipped, they had the old pricing in place. Thanks, here's the important leverage there.
Okay, great.
You know clearly very good results in an advanced surface technology, but I'm just not semi conductor. You know worries about you know pockets of slowing just.
you know, any impact from, you know, CapEx timing with key customers, and then maybe just give us a better sense of kind of...
you know, either your customers or your exposure to consumer electronics, which seems to be you know, maybe more at risk versus kind of the high performance compute and auto industrial, which seems more resilient.
In general, we're more exposed to them, not the memory size of the logic side jump, so we don't have as much exposure to the personal computer business. Also, it's important to keep in mind that basically 50% of our portfolio is recurring revenue. We call it aftermarket or service that business is if you will, from the cleaning, coating, and refurbishment part, what's not tied to the capital expenditure or direct way. What's not tied to the capital expenditure or direct way.
Please expect our results to continue to be okay.
And feedback we're getting from customers is still, you know, generally constructive. There always are timing differences from quarter to quarter based a lot on supply chain other than us.
because the supply chain of other suppliers to big semi-company affects our overall.
Shimmadates with customers as well General if I tell you anything moving out a little bit just but just because it's flying but they haven't canceled there are many cancellations a bad blogger still really strong and still growing
Okay, and then just, you know, again, I mean, great performance and what's becoming maybe a more mixed macro picture. Any cractor scene, you know, across the businesses that maybe, you know, we can't see in the overall results. Thanks.
I'm not sure I would call it a crack, Jeff. The one thing that we've seen is because the refineries are running full out, they're not doing as many turnarounds. We're seeing that at Scarlock. There were several turnarounds postponed in the first quarter. We're seeing that at Scarlock.
So later in the year, I don't know if they'll happen later in the year because they're still running full speed, if you will.
But that's a good news, bad news scenario for us. The good news is they still have to do maintenance, and it's more expensive when they do it. If you don't do the plan maintenance, you do more expensive maintenance later. And so I expect some of that maintenance will get moved into the third quarter but we've already arisen to the first quarter of next year. That's also in our forecast. I don't see how many of them are in the past.
Y'all really have anything to add other than macro events. You know, we're watching.
you know, gas supply coming out of Russia, how that impacts the European economy. You know, we have the best factors that we and other companies deal with.
Okay, great that. Thanks, guys.
The next question comes from the line of ANS Latino with Oppenheimer. Please receive your question.
Hi, great. Thank you very much. I'm a guide and can you guys just tell us how much is or what your assumptions are for the FX impact or maybe what the constant currency growth rate might be?
Thanks.
So, you want to take that to James? Yes, sorry. Melton is not feeling well at the moment. So, I'm going to go ahead and show you how to do that.
When we think about the foreign exchange translation, our forecast is based on where the US dollar has strengthened up until July . So what we would expect from a constant currency perspective is that we generally...
Ex-exclude translation impacts in our top line forecast overall, but there will be a headwind in the back half. Ex-exclude translation impacts in our top line forecast overall, Ex-exclude translation impacts in our top line forecast overall, Ex-exclude translation impacts in our top line forecast overall,
And then assuming July rates hold, probably included in our forecast, probably hit us from an adjusted EBITDA perspective by about a million dollars.
And, uh, Ian, I'll jump back in now.
That's translation. So we're expecting, you know, an incremental roughly, if June 30 drives home.
Roughly a billion dollar headwind on translation compared to the first half of the year.
We also on the transaction side.
We highlighted.
the
re-diulation of foreign cash that gave us a tailwind in the first half of the year.
Since we don't predict currency changes.
We're assuming that that's neutral basically for the balance of the year. And so, that was the benefit as we mentioned in the first half by about $4.5 million dollars.
Um...
So, you think about currency, you have to, and you think about H1 versus H2, and you have to think about both of those compounds.
Okay, perfect. And then just thinking on international, in Europe , can you just maybe give us a kind of a flavor of what you're seeing there? Maybe, you know, some of the better businesses and then maybe some of the other businesses that have been impacted more just given kind of Russia Ukraine and the geopolitical landscape there. Thanks.
Our biggest European exposure resides in engineered materials via GGB, and where we have seen some, you know,
volatility in the European auto market, which does contribute a bit to GGB's profitability in the second half, which is included in our forecast. Other than that, the smaller European exposures largely in sailing technologies and all via the GARLock and Technetics remain quite strong.
Okay, this is our precolor. Thank you guys.
Our next question comes from the line of Steve Ferrezani with Siddoti. Please receive with your question.
Good morning everyone. I wanted to ask about performance and engineered materials because obviously you had the impact from the slower European automotive production and even domestic hasn't been...
The expectation would be a significant ramp into the second half, hopefully, and certainly into 2023, and then on aerospace getting better, but potentially getting a lot better, given the leverage you have in that business, how are you thinking, and I know first half is typically better than second half, but despite the European headwinds, how are you thinking about that segment into the second half and then beyond?
Yeah, we do have the most without state andality, we know that earlier and the first half of the year.
has been relatively strong because our domestic auto it quality we use it for a lot of summer that we r be on our weapons against the a lot of some all were there here.
helped offset some of the weaknesses we saw in Europe in the automotive industry. So we're encouraged by that. It seems that some of the supply chain issues are starting to loosen up a little bit, particularly we're seeing it once again in the domestic auto part of our business. Our space is relatively small in the segment. Slide one.
It's more significant in the ceiling segment, but it does make a difference and we are seeing growth.
in aerospace and engineering that led to our strong results in the first half of the year.
So yeah, but we do have seasonality and we expect to see it again this year as we typically do with you know European holidays being pretty heavy in the third quarter.
We usually say get them the third quarter and your pay express businesses.
When I think about the strength you're seeing in ASP, and then when you talked about the next edge acquisition last year you talked about.
The benefits given the significant expected investment in the US chip industry After months we finally saw the chip bill move forward How positive are you and how much is that going to translate not near term but over the longer term for the growth in that business Now that we see clear signs we're going to get that big investment in the US chip market
We certainly are hopeful to get a piece of that at some point with a chip stack and we certainly play in that supply chain. We're going to continue make investment and the investment in the US is certainly going to help us dramatically over time. But it's still a couple years away, you're in half a way.
Turn it out immediately.
not immediate. No, of course.
When I think about the balance sheet, which is continuing to improve, you're generating a ton of cash, what's your appetite for acquisitions? Obviously, you're still working through Next Edge. What's the pipeline look like and what are you seeing out there and what's your appetite right now?
We have a very active pipeline, and we are certainly hopeful and working diligently at every data find ways to add value. And so we will take advantage of opportunities that are strategic as they come about, but at the same time, we are comfortable where we are.
Don't feel any pressure back, so we'll be disciplined in our approach.
In just how light will we, I think we've already said several times on the call that in our existing portfolio with the moves that we've made, we've already seen the kind of side, particularly our EST segment on the growth end.
Great thanks, Eric. Thanks, Milk. Appreciate it.
I don't know further questions. I'd like to hand the call back over to Mr. Gentelli for closing remarks.
Thank you for your interest this morning and have a great day.
Ladies and gentlemen, this does include today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.