Q1 2024 Enpro Inc Earnings Call
Operator: Hello, and welcome to the EnPro Q1 2024 earnings conference call. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may be placed into the question queue at any time by pressing star 1 on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to James Gentile, Vice President, Investor Relations. Please go ahead, sir.
Hello, and welcome to the <unk> Q1, 'twenty 'twenty four earnings conference call. If anyone should require operator assistance. Please press star zero on your telephone keypad a.
A question and answer session will follow the formal presentation.
You may be placed at the question queue at any time by pressing star one on your telephone keypad.
As a reminder, this conference is being recorded.
My pleasure to turn the call over to James Gentilly, Vice President Investor Relations. Please go ahead Sir.
James Gentile: Thanks, Kevin, and good morning, everyone. Welcome to EnPro's first quarter 2024 earnings conference call. I will remind you that our call is being webcast at EnPro.com, where you can find the presentation that accompanies this call. With me today is Eric Vaillancourt, our President and Chief Executive Officer, Joe Broderick, Executive Vice President and Chief Financial Officer, and Milt Childress, Executive Vice President.
James Gentile: Thanks, Kevin and good morning, everyone. Welcome to <unk> first quarter 2024 earnings Conference call I'll remind you that our call is being webcast at <unk> Dot Com, where you can find the presentation that accompanies this call with me today is Eric Alan Cole, our President and Chief Executive Officer, Joe <unk>, Executive Vice President and Chief Financial Officer, and Milt Childress executive.
James Gentile: Vice President.
James Gentile: During today's call, we will reference a number of non-GAAP financial measures. Tables reconciling the historical non-GAAP measures to the comparable GAAP measures are included in the appendix to the presentation material. Also, 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 those described in our filings with the SEC. Also note that during this call, we will be providing full year 2024 guidance which excludes unforeseen impacts from these risks and uncertainties. We do not undertake any obligation to update these forward-looking statements.
James Gentile: During today's call, we will reference a number of non-GAAP financial measures tables reconciling the historical non-GAAP measures to the comparable GAAP measures are included in the appendix to the presentation materials.
James Gentile: So 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 those described in our filings with the SEC.
James Gentile: Also note that during this call we will be providing full year 2024 guidance, which excludes unforeseen impacts from these risks and uncertainties. We do not undertake any obligation to update these forward looking statements.
James Gentile: It is now my pleasure.
James Gentile: It is now my pleasure to turn the call over to Erik <unk>, Our President and Chief Executive Officer, Eric.
Eric A. Vaillancourt: Thanks, James, and good morning, everyone. Thank you for joining us today as we review our results for the first quarter and provide an update that includes our current outlook for 2024. Before we begin, I would like to take a few moments to thank Milt Childress for his service to EnPro. During his tenure at EnPro, the company's value has increased six-fold, and his positive impacts on our business strategy, financial strength, and culture have been remarkable.
Erik: Thanks, James and good morning, everyone. Thank you for joining us today as we review our results for the first quarter and provide an update that includes our current outlook for 2024.
Eric A. Vaillancourt: Today marks Milt's 74th and final earnings conference call as he will be retiring at the end of this month. I know I speak for the entire EnPro team when I say that Milt will be greatly missed. His influence on our organization, the way all of us work together, and, most importantly, his incredible heart, wisdom, and passion for our company will be alive throughout EnPro far into the future. Milt, would you like to say a few words?
Erik: Before we begin I would like to take a few moments to thank Milt Childress first service stand growth. During his tenure at Umbro accompanies value has increased sixfold and has positive impacts on our business strategy financial strength and culture have been remarkable.
Erik: Today, Mark today marks milled, 74th and final earnings conference call and Kathy will be retiring at the end of this month.
Erik: I know I speak for the entire on protein when I say the mill will be greatly missed his influence on our organization. The way all of US work together and most importantly is incredible heart wisdom and passion for our company will be alive throughout <unk> or into the future would you like to say a few words.
Milt Childress: Yeah, thanks, Eric. A few words is a pretty tough ask after nearly 19 years.
Speaker Change: Yeah. Thanks, Eric a few words is a pretty tough ask after nearly 19 years I'll start I'll sum it up this way to paraphrase the philosopher and theologian Elton trueblood.
Milt Childress: I'll sum it up this way. To paraphrase the philosopher and theologian Elton Trueblood. And I'm doing this liberally, so give me a little bit of grace as I state this.
Speaker Change: And I'm doing this liberally so give me give me a little bit of.
Speaker Change: <unk> as I state. This we have a start and I am talking about us collectively had started understanding the purpose of life when we plant trees under who shade, we will never fully sit.
Milt Childress: We have a start, and I'm talking about us collectively, at understanding the purpose of life when we plant trees under whose shade we will never fully sit. And that precisely describes how I feel about the work of our team. Not only what I've done here but the work of our team. I couldn't be prouder of the way we work, nor more excited about the future of EnPro, watching this tree grow. Over time, our colleagues, investors, and other stakeholders will enjoy more and more of the shade. The best is yet to come. Thank you.
Speaker Change: And that precisely describes how I feel about the work of our team not only what I've done here, but the work of our team I couldnt be prouder of the way we work.
Speaker Change: We're more excited about the future of them probe watching this tree grow.
Speaker Change: Over time, our colleagues investors and other stakeholders will enjoy more and more of the shade.
Speaker Change: The best is yet to come.
Speaker Change: Thank you.
Eric A. Vaillancourt: Thank you for everything, Milt. We wish you well in retirement, and we will work hard every day to make you proud. Now on to our first quarter performance. After my review, I will turn the call over to Joe for a more detailed discussion of our results and our current outlook for 2024. Ceiling technology started the year with strong operating performance. However, as we expected, the softness in AST has persisted due to current conditions in the semiconductor market, and, as previously noted, we expect that the first quarter will mark the low point for AST segment results.
Speaker Change: Thank you for everything now we wish you well in retirement, and we will work hard everyday to make you proud.
Speaker Change: Now onto our first quarter performance.
Speaker Change: After my review I will turn the call over to Joe for a more detailed discussion of our results and our current outlook for 2024.
Speaker Change: Yes.
Eric A. Vaillancourt: In ceiling technologies, despite volume declines in certain markets, adjusted segment EBITDA margins exceeded 30%. Strength in nuclear and aerospace, as well as strategic pricing actions and partial quarter contributions from AMI, which has performed very well since joining EnPro, offset weakness in commercial vehicle demand and continued softness in food and pharma.
Joe: Sealing technology started the year with strong operating performance as we expect the softness in ASC has persisted during the current conditions in the semiconductor market and as previously noted we expect that the first part of a mark the low point for AFC segment results.
Joe: In sealing technologies, despite volume declines in certain markets adjusted segment EBITDA margins exceeded 30%.
Joe: Strength in nuclear and aerospace as well as strategic pricing actions and partial quarter contributions from EMI, which has performed very well since joining umbro offset weakness in commercial vehicle demand and continued softness in food and pharma strong cost controls and favorable mix were also contributing factors to the excellent results.
Eric A. Vaillancourt: Strong cost controls and favorable mix were also contributing factors to the excellent results. Our continued positive momentum and profitability in ceiling technologies reflect the underlying strength of this segment. Our focus on applied engineer differentiation, compelling aftermarket characteristics, incremental investments in organic growth, and continuous improvement opportunities has created a foundation for profitable growth. Additionally, we continue to pursue strategic opportunities in adjacent markets that build upon our core competencies in safeguarding critical environments, as demonstrated with the recently closed AMI purchase. In the advanced surface technology segment, despite the revenue decline of 21%, we maintained a 20% adjusted segment EBITDA margin.
Joe: Our continued positive momentum and profitability in sealing technologies reflect underlying strength of this segment are focused on applied engineered differentiation compelling aftermarket characteristics incremental investments in organic growth and continuous improvement opportunities and created a foundation for profitable growth.
Joe: Additionally, we continue to pursue strategic opportunities in adjacent markets that build upon our core competencies and safeguarding critical environments as demonstrated with their recently recently closed purchase.
Joe: And the advanced surface technology segment. Despite the revenue decline of 21%, we maintained and a 20% adjusted segment EBITDA margin we.
Eric A. Vaillancourt: We are continuing to make strategic growth investments and advance operational improvement initiatives to position ASD for long-term growth. We are focused on executing our multi-year strategy to drive growth in AST's attractive markets. We are beginning to see signs of recovery in certain key product lines as the overall semiconductor market stabilizes and resumes its growth trajectory. AST is a key component of our vision for the future of EnPro, and we are confident the segment will also position itself to drive growth and profitability as markets improve. Total adjusted EBITDA margins were 22.7% this quarter, and our balance sheet remains in excellent shape.
Joe: We are continuing to make strategic growth investments and advance operational improvement initiatives to position <unk> for long term growth.
Joe: We are focused on executing our multiyear strategy to drive growth in Asps as attractive markets. We are beginning to see signs of recovery in certain key product lines.
Joe: The overall semiconductor market stabilizes and resumed its growth trajectory forward.
Joe: <unk> is a key component of our vision for the future event growth and we are confident this segment is well positioned to drive growth and profitability as markets improve.
Joe: Total adjusted EBITDA margins were 22, 7% this quarter and our balance sheet remains in excellent shape. We continue to offer critical solutions for our customers and deliver them in world class fashion.
Eric A. Vaillancourt: We continue to offer critical solutions for our customers and deliver them in world-class fashion. I would like to thank our teams across EnPro for their continued focus on our core values of safety, excellence, and respect. Every day, our teams work hard, empower one another, and find purpose in their work. The company is built upon a strong foundation, and there is no better time to be a part of EnPro.
Joe: I would like to thank our teams across Sandro for their continued focus on our core values of safety excellence and respect every day, our teams work hard to power one another and find purpose in their work.
Joe: The company is built upon a strong foundation and there is no better time to repower to been proud of it Joe.
Joe Broderick: Thank you, Eric, and good morning everyone. I would like to thank Milt for his guidance and tremendous partnership in the recent months, and I am honored to succeed him as CFO. It is clear that we have a great team in place at every level of the organization, and I am excited about the significant opportunities that lie ahead. Diving into the results, in the first quarter, sales of $257.5 million decreased almost 9%. And organic sales declined 12%, driven primarily by lower results in the AST segment due to ongoing softness in semiconductors.
Joe: Thank you Eric and good morning, everyone I would like to thank military as guidance and tremendous partnership in recent months and am honored to succeed him as CFO. It.
Speaker Change: It is clear that we have a great team in place at every level of the organization and I am excited about the significant significant opportunities that lie ahead.
Speaker Change: Diving into the results in the first quarter sales of $257 $5 million decreased almost 9% and organic sales declined 12% driven primarily by lower results in the ASC segment due to ongoing softness in semiconductor.
Joe Broderick: First quarter adjusted EBITDA of $58.4 million decreased roughly 15% compared to the prior year period. Adjusted EBITDA margin of 22.7% decreased to 160 basis points year over year. These revenue declines were partially offset by strength in certain resilient markets. Strategic Pricing, Cost Mitigation, and Continuous Improvement Initiatives. Again, the company showed solid management of decremental margins in the face of softness in the semiconductor and commercial vehicle markets while continuing to prioritize ongoing investments to drive future growth. Corporate expenses of $12.2 million in the first quarter of 2024 were up from $11 million a year ago. Last year, reductions in share price-related incentive compensation accruals benefited corporate expense by $1.9 million.
Speaker Change: First quarter, adjusted EBITDA of $58 $4 million decreased roughly 15% compared to the prior year period.
Speaker Change: Adjusted EBITDA margin of 22, 7% decreased 160 basis points year over year.
Joe: These revenue declines were partially offset by strength in certain resilient markets strategic pricing cost mitigation and continuous improvement initiatives.
Joe: Again, the company showed solid mat solid management of decremental margins in the face of softness in semiconductor and commercial vehicle markets, while continuing to prioritize ongoing investments to drive future growth.
Joe: Corporate expenses of $12 2 million in the first quarter of 2024 were up from $11 million a year ago.
Joe: Last year reductions in share price related incentive compensation accruals benefited corporate expense by $1 9 million.
Joe Broderick: Adjusted diluted earnings per share of $1.57 decreased almost 20% from last year, largely driven by the factors impacting adjusted earnings per share. Moving to a discussion of segment performance, ceiling technology sales of $171 million decreased 1%. The Partial Quarters Contribution from AMI, Strategic Pricing Actions, and Strength in Nuclear and Aerospace offset softness in commercial vehicle, food, and pharmaceutical, and general industrial demand in Asia. Our aftermarket positions in this segment offer enduring stability, and our critical and innovative solutions for a number of leading-edge applications clearly differentiate us. The segment is structurally strong, with adjusted EBITDA margins exceeding 30% for the first quarter, despite demand headwinds in some markets. For the first quarter, adjusted segment EBITDA increased 6.6%.
Joe: Adjusted diluted earnings per share of $1 57 decreased almost 20% from last year, largely driven by the factors impacting adjusted EBITDA.
Joe: Moving to a discussion of segment performance sealing technology sales of $171 million decreased 1%.
Joe: A partial quarters contribution from AMRI strategic pricing actions and strength in nuclear and aerospace offset softness in commercial vehicle food and pharma and general industrial demand in Asia.
Joe: Our aftermarket positions in this segment offer enduring stability and are critical and innovated innovative solutions for a number of leading edge applications clearly differentiate us.
Joe: The segment is structurally strong with adjusted EBITDA margins exceeding 30% for the first quarter despite demand headwinds in some markets.
Joe: For the first quarter adjusted segment EBITDA increased six 6%.
Joe Broderick: Strategic Pricing and Sourcing Actions, the Partial Quarter Contribution from AMI, Improve Mix, 80-20 Discipline and Focus on Aftermarket Work, and Continuous Improvement Initiatives throughout the segment offset overall volume decline to drive the strong results. Ceiling's ability to maintain robust margin performance through a sales decline reflects the strength of our market positioning and the criticality of our technology and essential applications. We are encouraged by positive order momentum in certain shorter cycle product lines that we expect to drive improved performance in ceiling technologies into the second quarter.
Joe: Strategic pricing and sourcing actions the partial quarter contribution from EMI improved mix 80, 20 discipline and focus on aftermarket work and continuous improvement initiatives throughout the segment offset overall volume declines to drive the strong result.
Joe: <unk> ability to maintain robust margin performance through a sales decline reflects the strength of our market positioning and the criticality of our technology and our essential applications.
Joe: We are encouraged by positive order momentum in certain shorter cycle product lines that we expect to drive improved performance in sealing technologies into the second quarter.
Joe Broderick: Demand for our longer-cycle, backlog-driven solutions, such as in aerospace, space exploration, and sustainable power generation, is growing nicely and gives us confidence for continued solid performance in the segment moving forward. Now, we turn to advanced service technology.
Joe: Demand in our longer cycle backlog driven solutions, such as an aerospace space exploration at sustainable power generation is growing nicely and gives us confidence for continued solid performance in the segment moving forward.
Joe: We turn now to advanced service technologies.
Joe Broderick: As expected, we saw a sequential and year-over-year decline in financial performance. First quarter sales of $86 million decreased 21.4%, driven primarily by continued weakness in semiconductor capital equipment spending. Portions of the segment are showing continued secular growth and recovery, while we are experiencing headwinds in certain product lines where inventory de-stocking could persist in coming months. However, our positioning on advanced node platforms in the semi-space and our ability to utilize our technological advantages and process know-how for future platforms is encouraging.
Joe: As expected, we saw a sequential and year over year decline in financial performance.
Joe: First quarter sales of $86 million decreased 21, 4% drill.
Joe: Driven primarily by continued weakness in semiconductor capital equipment spending.
Joe: Portions of this segment are showing continued secular growth in recovery, while we are experiencing headwinds in certain product lines, where inventory destocking could persist in coming months.
Joe: Our positioning on advanced node platforms in the semi space and our ability to utilize our technological advantages and process knowhow for future platforms is encouraging.
Joe Broderick: We continue to invest in AST and are pleased with our strategic positioning in these critically important markets. The first quarter adjusted segment EBITDA decreased 41% versus the prior year period, but adjusted segment EBITDA margin remained above 20%. Volume decline was the primary driver for the year-over-year reduction in profitability.
Joe: We continue to invest in Asps.
Joe: And are pleased with our strategic positioning in these critically important markets.
Joe: For the first quarter adjusted segment EBITDA decreased 41% versus the prior year period.
Joe: Adjusted segment EBITDA margin remained above 20%.
Joe: The volume decline was the primary driver for the year over year reduction in profitability.
Joe Broderick: We have balanced the realities of short-term volume levels with our goals of remaining well-positioned for the market upturn by investing in future growth opportunities. Turning to the balance sheet and cash flow. We completed the AMI purchase on January 29, utilizing $210 million in available cash. In addition, we acquired the remaining non-controlling interest in Alexa in February for $17.9 million. Our net leverage ratio, inclusive of these transactions, stands at approximately 2.3 times trailing 12-month adjusted EBITDA.
Joe: We have balanced the realities of short term volume levels, where their goals and remaining well positioned for the market upturn in investing in future growth opportunities.
Joe: Turning to the balance sheet and cash flow.
Joe: We completed the Ams purchase on January 29th utilizing $210 million in available cash in.
Joe: In addition, we acquired the remaining Noncontrolling interest in <unk> in February for $17 9 million.
Joe: Our net leverage ratio inclusive of these transactions stands at approximately two three times trailing 12 month adjusted EBITDA.
Joe Broderick: Free cash flow in the first quarter turned slightly negative compared to about $21 million of positive free cash flow in the prior year quarter. Due to the year-over-year reduction in EBITDA, timing of working capital, and $5 million of incremental long-term incentive compensation payouts related to prior periods. $3.3 million of transaction fees associated with the AMI purchase and higher cash tax payments of $5 million in the quarter. We received a tax refund in the previous quarter.
Joe: Free cash flow in the first quarter turned slightly negative compared to about $21 million of positive free cash flow in the prior year quarter due.
Joe: Due to the year over year reduction in EBITDA timing of working capital $5 million of incremental long term incentive compensation payouts related to prior periods.
Joe: $3 3 million of transaction fees associated with the <unk> purchase and higher cash tax payments of $5 million in the quarter.
Joe: We received a tax refund in the year ago quarter.
Joe Broderick: For the year, we continue to expect free cash flow to exceed $100 million and capital expenditures in the $60 million range, the majority of which will be focused on growth and efficiency projects. We have strong financial flexibility to execute our strategic initiatives, both organically and through acquisitions that broaden our capabilities. Our goal is to build upon our leading-edge positions in markets with secular growth drivers that safeguard critical environments and applications that touch our lives every day.
Joe: For the year, we continue to expect free cash flow to exceed $100 million and capital expenditures in the $60 million range.
Joe: Majority of which will be focused on growth and efficiency projects.
Joe: We have strong financial flexibility to execute our strategic initiatives, both organically and through acquisitions that broaden our capabilities.
Joe: Our goal is to build upon our leading edge positions in markets with secular growth drivers that safeguard critical environments and application that touch our lives every day.
Joe Broderick: Our strong balance sheet and cash flow generation provide us with ample liquidity to make these investments while continuing to return capital to shareholders. In the first quarter, we paid a $0.30 per share quarterly dividend, totaling $6.4 million.
Joe: Our strong balance sheet and cash flow generation provide us with ample liquidity to make these investments while continuing to return capital to shareholders.
Joe: In the first quarter, we paid a <unk> 30 per share quarterly dividend.
Totaling $6 $4 million.
Joe Broderick: Moving now to our 2024 guidance. Taking into consideration all the factors that we know at this time, we maintain our total year 2024 guidance issued in February. We expect total EnPro sales growth to be in the low to mid-single-digit range, adjusted EBITDA of between $260 million and $280 million, and adjusted diluted EPF to range from $7.00 to $7.80. The normalized tax rate used to calculate adjusted diluted earnings per share remains at 25%, and fully diluted shares outstanding are approximately $21 million.
Joe: Moving now to our 2020 for guidance.
Joe: Taking into consideration all the factors that we know at this time, we maintain our total year 2024 guidance issued in February.
Joe Broderick: We expect total input and pro sales growth to be in the low to mid single digit range adjusted EBITDA of between $260 million and $280 million and adjusted diluted EPS to range from $7 to $7 80.
Joe Broderick: The normalized tax rate used to calculate adjusted diluted earnings per share remains at 25% and fully diluted shares outstanding are approximately $21 million.
Joe Broderick: In the advanced surface technology segment, we expect a slight sequential improvement in the second quarter. We continue to see growth in our advanced noted cleaning business and positive demand signals in our chambered tool performance coatings business. Overall, the semiconductor market appears to be stabilizing, and we are seeing signs of recovery that should drive improved results in coming periods. For ceiling technologies, we expect an improved order pattern in certain shorter cycle product lines.
Joe: And the advanced surface technology segment, we expect a slight sequential improvement in the second quarter.
Joe: We continue to see growth in our advanced node cleaning business and positive demand signals in our chamber tool performance coatings business.
Joe Broderick: Overall, the semiconductor market appears to be stabilizing and we are seeing signs of recovery that should drive improved results in coming periods.
Joe Broderick: In sealing technologies, we expect an improved order patterns in certain shorter cycle product lines firm backlog and positive mix can offset weaker demand in commercial vehicle OEM.
Joe Broderick: Firm backlog and positive mix can offset weaker demand in commercial vehicle OEMs. We expect ceiling to exhibit the typical seasonal patterns where the first half is slightly stronger than the second half. We continue to anticipate that where we land within our guidance range will primarily depend on the timing and magnitude of the recovery. Regardless of the precise timing, we are well positioned and are making appropriate investments to drive future growth and value. I will now turn the call back to Eric for closing comments.
Eric: We expect ceiling to exhibit typical seasonal patterns, where the first half is slightly stronger than the second half.
Eric: We continue to anticipate that where we land within our guidance range will primarily depend on the timing and magnitude of the recovery in semiconductor.
Eric: Regardless of the precise timing, we are well positioned and are making appropriate investments to drive future growth and value.
Joe Broderick: I will now turn the call back to Eric for closing comments. Thanks.
Eric A. Vaillancourt: Thanks Joe. Overall, the balance inherent in EnPro's portfolio is evident again in 2024. Our discipline and rigor enable us to perform well under a diverse set of market conditions. Our best-in-class portfolio generates attractive margins and cashflow returns, and our value-trading strategy remains unchanged. Thank you again for joining us today. We appreciate your interest in EnPro. We'll now welcome your questions.
Eric: Thanks, Joe overall, the balance inherent in <unk> portfolio was evident again in 2024, our discipline and rigor enable us perform well on a diverse set of market conditions.
Eric A. Vaillancourt: Our best in class portfolio generates attractive margins and cash flow returns and our value creating strategy remains unchanged.
Eric A. Vaillancourt: You again for joining us today, we appreciate your interest in <unk> will now welcome your questions.
Operator: Thank you. We will now be conducting a question and answer session. If you'd like to be placed in the question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. One moment, please, while we poll for questions. Our first question today is coming from Jeff Hammond from KeyBank Capital Markets.
Speaker Change: Thank you, we'll now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad.
Jeffrey David Hammond: Confirmation tone will indicate your line is in the question Q1 moment. Please while we poll for questions.
Operator: Our first question today is coming from Jeff Hammond from Keybanc capital markets. Your line is now live.
Jeffrey David Hammond: Hey, good morning, guys. Hey, Jeff. Hey, Jeff. Unknown Speaker Yes. You know, a couple on Milt.
Jeffrey David Hammond: Hey, good morning, guys.
Speaker Change: Hey, Jeff.
Jeffrey David Hammond: Yes so.
Jeffrey David Hammond: A couple on milk. Thanks again for everything we appreciate we appreciate all your time that you've spent with us.
Jeffrey David Hammond: Thanks again for everything. We appreciate all your time that you've spent with us. Thank you, Jeff. I really just want to dig in on semiconductors, I guess.
Speaker Change: Thank you Jeff I appreciate it.
Jeffrey David Hammond: Really just wanted to dig in on on semi conductor I guess.
Unknown Speaker: It sounds like cleaning and leading edge nodes seem to be getting better, maybe you could talk through the parts where you're still seeing destocking and still seeing weakness and then just, if we snap a line as of today, are we feeling kind of more or less confident around, you know, kind of the second half ramp and an AST Unknown Attendee, I'll jump in and start, Jeff. [inaudible]
Jeffrey David Hammond: Yes, it sounds like <unk>.
Speaker Change: Cleaning and leading edge node seems to be getting better you know maybe talk through.
Speaker Change: The parts, where youre still seeing destocking and still seeing weakness and then just.
Speaker Change: You know if we snapped the line as to as of today are we or where you're feeling kind of more or less confident around.
Speaker Change: Kind of second half ramp in and Asti.
Eric A. Vaillancourt: I'll jump in and start, Jeff. Eric, so first off, in all segments, our backlogs grew. So we're feeling better about the second half as time goes on. Our cleaning and coating business certainly has some momentum, I would call it. And the rest of our business, I would say, is kind of choppy. I wouldn't say destocking is still going on. We just haven't had the momentum there, but we're seeing green shoots where it's getting a little bit better here and there. But it just hasn't taken off, and we're getting ready for that to happen sometime, hopefully later this year.
Speaker Change: I'll jump in and start Jeff.
Eric A. Vaillancourt: It's Eric So first of.
Eric A. Vaillancourt: All segments, our backlogs group, so we're feeling better about the second half as time goes on.
Eric A. Vaillancourt: Cleaning and coating business certainly have some <unk>.
Eric A. Vaillancourt: Momentum I would call it and the rest of our business I would say is kind of choppy headwinds say destocking is still going on and we just haven't had momentum there we're seeing green shoots for us getting a little bit better here and there, but it just hasnt taken off and we're getting ready for that to happen sometime hopefully later this year.
Stephen Michael Ferazani: Thank you. The next question today is coming from Steve Fertizini from Fertizani, from Sudotian Company. Your line is now live.
Eric A. Vaillancourt: Thank you. Your next question today is coming from Steve <unk> from first Tony from Sidoti and company. Your line is now live.
Stephen Michael Ferazani: Morning, everyone, and good luck, Milt, with everything. I want to follow up that last question in terms of how the semiconductor recovery fits into your guidance. You know, when the semiconductor decline began, you guys lagged it by really even a couple of quarters. The concern would be that we start seeing that recovery, but you lag into 25. So I'm trying to figure out your confidence level that, indeed, even outside of cleaning and coding, you get that recovery in the second half. And I guess that's specific to what you're hearing from your customers.
Stephen Michael Ferazani: Good morning, everyone and good luck mills with everything.
Stephen Michael Ferazani: I wanted to follow up that last question in terms of.
Stephen Michael Ferazani: How the semiconductor a cat cover research into your guidance.
Stephen Michael Ferazani: When the semi decline.
Stephen Michael Ferazani: Began you guys flagged it really even a couple of quarters. The concern would be that we start seeing that recovery, but you lag into 25, so I'm trying to figure out your confidence level that indeed, even outside of cleaning and coding you get that recover in the second half and I guess, that's specific to what youre hearing from your customers.
Stephen Michael Ferazani: Okay.
Stephen Michael Ferazani: Steve, first, I mean, as we definitely saw some strength in the first half of 2023, given firm backlogs, throughout this entire down period, the secular drivers around advanced node positioning in our advanced cleaning business and in certain other areas actually were pretty steady, if not growing, with positive mix factors affecting the sector. If you take a step back, there is still a little slow order flow, and we're seeing periods of kind of...
Steve: Steve first.
Stephen Michael Ferazani: We definitely saw some strength in the first half of 2023.
Stephen Michael Ferazani: Given firm backlogs throughout this entire down period, the secular drivers around advanced node positioning in RF and advanced cleaning business and in certain other areas.
Stephen Michael Ferazani: Actually we're pretty steady if not growing.
Stephen Michael Ferazani: With positive mix factors.
Stephen Michael Ferazani: Affecting the segment, if you kind of take a step back there are periods there is still a.
Stephen Michael Ferazani: Little slow order flow and we're seeing periods of kind of.
Stephen Michael Ferazani: Unknown Speaker Intermittent kind of inventory destocking on certain capital equipment platforms, but that should loosen up in coming periods and the drivers of our positioning are, you know, giving us some confidence that, you know, the back half will show some, you know, significant improvement.
Stephen Michael Ferazani: Yes.
Stephen Michael Ferazani: Intermittent kind of hits.
Stephen Michael Ferazani: Inventory destocking on certain capital equipment platforms, but that should loosen up in coming periods and the drivers of our positioning are.
Stephen Michael Ferazani: Giving us some confidence that the back half will show some.
Stephen Michael Ferazani: Significant improvement.
Unknown Speaker: Okay, fair enough. If I could ask about Alexa, can you explain that? Was there a leadership change resulting in that non-controlling interest purchase? And can you give us a general update on what's going on with Alexa?
Speaker Change: Okay fair enough.
Speaker Change: If I can ask about Alexa can you explain that.
Unknown Speaker: Our leadership change, resulting in a non controlling interest purchase and can you give us a general update on what's going on with the Luxor.
Unknown Speaker: Oh, that was just a small kind of a put-call arrangement that was initiated when we completed the acquisition in 2020, and they decided to exercise that put-call provision, and Alexa has now become a wholly-owned subsidiary of EnPro. No surprise there; that was all expected according to plan.
Unknown Speaker: That was just a small kind of a put call arrangement that was initiated when we completed the acquisition in 2020.
Unknown Speaker: And they decided tax exercise that put call provision.
Unknown Speaker: And <unk> now become a wholly owned subsidiary of <unk> No surprise, there that was all expected. According to plan so okay.
Stephen Michael Ferazani: Unknown Speaker Okay, fair enough. Thanks for that. On the ceiling side, you know, you had a little bit of a bump in the fourth quarter, obviously the commercial vehicle market weakened. At that time, you talked about transitioning some of your sales more directly towards the aftermarket. Looking at the numbers, was there success in that? I would guess there was, or was it just the other markets, aerospace and nuclear, being very strong?
Speaker Change: Okay fair enough thanks for that.
Stephen Michael Ferazani: On the ceiling side.
Stephen Michael Ferazani: You had a little bit of a bump in the fourth quarter.
Stephen Michael Ferazani: The commercial vehicle market weekend at that time, you talked about transitioning some of your sales more directly towards the aftermarket looking at the numbers was there a success and that I would guess there was or was it just the other markets aerospace and nuclear being very strong.
Unknown Speaker: Yeah, Steve, as we talked about coming out of the fourth quarter, the heavy-duty trucking commercial OEM side of things was expected to be down about 25% in the market. And that's what we've seen so far.
Speaker Change: Yes, Steve as we talked about coming out of the fourth quarter right.
Unknown Speaker: The duty trucking commercial OEM side of things was expected to be down about 25% in the market and that's what we've seen so far so because of that.
Unknown Speaker: So because of that, we've really focused on positioning ourselves to the aftermarket. That's been successful, and that's what led to some of the favorable mix coming into the first quarter. We've seen improved aftermarket business that's offsetting the OEM business being down. And we're approaching an aftermarket mix in the 70% range versus commercial OEM, and it's been quite successful there. So the STEMCO and overall ceiling team has been done quite well, and you've seen the results in the improved margins.
Steve: Really focused on positioning to the aftermarket that's been successful and Thats whats led to.
Unknown Speaker: Some of the favorable mix coming into the first quarter, we've seen improved aftermarket business, that's offsetting the OEM business being down.
Unknown Speaker: And we're approaching.
Unknown Speaker: Aftermarket mix in the 70% range versus commercial OEM and admins quite successful there. So the stem co and an overall sealing team has done quite well and you've seen the results and the improved margins.
Unknown Speaker: Absolutely, could get one more in on integration of AMI, how that's going, how you felt about that business so far, and what you think the look ahead for it and how it fits within the ceiling. AMI has been just a home run.
Speaker Change: Absolutely yes.
Speaker Change: Yes, I forgot one more in.
Unknown Speaker: Integration of Ami, how thats going how you felt about that business. So far and what you think to look ahead for it and how it fits within <unk>.
Unknown Speaker: Sealing.
Unknown Speaker: AMI has been just a home run. We've been really excited about that business. They continue to operate very, very well. We're very, very proud to have them, and the team is executing incredibly well. So we continue to be very excited about that business.
Unknown Speaker: Ams men's just a homerun, we've been really excited about that business. They continued to operate.
Unknown Speaker: Very very well, we're very very proud to have them on the team is executing.
Unknown Speaker: <unk> well so we continue to be very excited about that business.
Unknown Speaker: Okay.
Speaker Change: Thanks, everyone.
Speaker Change: Thanks, Steve.
Ian Alton Zaffino: Thank you. The next question is coming from Ian Zaffino from Oppenheimer. Your line is now live.
Unknown Speaker: Thank you next question is coming from Ian Zaffino from Oppenheimer. Your line is now live.
Isaac Salazan: Hey, good morning. This is Isaac Salazan on for Ian.
Ian Alton Zaffino: Hey, Good morning. This is <unk> on for Ian Thanks for taking the questions I'll Echo the previous sentiment Milt congrats on a great career at I'm proud and retirement.
Isaac Salazan: We missed on these earnings calls and welcome Joe as well.
Isaac Salazan: Yes.
Isaac Salazan: Thanks for taking the questions. I'll echo the previous sentiment. Milt, congrats on a great career at EnPro and then retirement. Certainly missed on these errands calls, and welcome Joe as well. The question is on ceilings. Could you speak a bit about the nuclear and aerospace businesses that were stronger this quarter? Maybe if you could remind us how big the nuclear end market is and some of the near to near to long term growth drivers there. Thanks.
Isaac Salazan: The question is on ceilings could you speak a bit about the nuclear and aerospace businesses that were stronger this quarter.
Isaac Salazan: Maybe if you provide us how big the nuclear end market is in some of the near term near to long term growth drivers there. Thanks.
Unknown Speaker: Sure. I'm familiar with the ITER project in France and nuclear fusion. ITER. Yes. Okay.
Isaac Salazan: Sure.
Isaac Salazan: I'm familiar with the <unk> project in France, and nuclear fusion itr.
Unknown Speaker: Yes.
Unknown Speaker: Well, certainly that project is driving some results for us. It's early, but we participate there as well as elsewhere. So, I would call it the renaissance, a resurgence of nuclear power across, especially across Europe and France. We are located there, doing very, very well with those businesses, and I continue to think those trends are going to continue.
Unknown Speaker: Okay, well certainly that projects is driving some results for us it's early but we participate there as well as elsewhere. So just I would call. It a renaissance of resurgence of nuclear costs, especially across Europe, and France and.
Unknown Speaker: And we are located they're doing very very well with those businesses and I continue to think those trends are going to continue.
Unknown Speaker: A small but meaningful, but meaningful part of our ceiling technology is that we've had a very strong positioning in nuclear for many years, and as you kind of look forward, given basically the reduction in fossil fuels and needing to kind of build base load power generation capacity, nuclear could be a very strong solution in western countries.
Unknown Speaker: There's a small and meaningful but meaningful part of our sealing technologies, we've had very strong positioning in nuclear for many years and as you kind of look forward given basically the reduction in fossil fuels and needing to kind of build baseload power generation capacity nuclear could be a very strong solution.
Unknown Speaker: In the western countries.
Unknown Speaker: In regards to space, we're on virtually every space launch there is in the U.S. As you see more launches, of course, that drives our business as well.
Unknown Speaker: Guards to space, where on virtually every space launch there is in the U S. There's always you see more launches of course that drives our business as well.
Unknown Speaker: Oh, we're certainly delighted with our positioning in certain areas in space, aerospace, and sustainable power generation.
Unknown Speaker: We're certainly delighted with our positioning in certain areas in space Aerospace and sustainable power generation.
Isaac Salazan: Okay, great. That's helpful. And then just higher level, I guess on ceilings, I guess you've had some pricing that's helped the quarter a bit, but maybe if you just spoke to just volume versus price mix and sort of what's embedded in guidance here.
Speaker Change: Okay, Great. That's helpful. And then just higher level I guess on ceilings.
Isaac Salazan: I guess, you've had some some pricing that helped the quarter a bit but maybe if you could just speak to.
Isaac Salazan: Just fallen versus price mix and.
Isaac Salazan: And sort of what's what's embedded in guidance here.
Unknown Speaker: Yeah, Isaac, we've seen surgical pricing that's been quite successful so far this year. The environment is not conducive to the broad race pricing that we've seen in the post COVID market in the last few years, but the team continues to execute quite well in surgical pricing. So you're seeing low to mid single-digit pricing execution, largely beginning of the year pricing activity, and really value-based pricing for some of our businesses that are positioned quite well and have a technological advantage.
Isaac Salazan: Yes, so I think we've seen.
Unknown Speaker: Surgical pricing that's been quite successful so far this year the environment is not conducive to the broad based pricing that we've seen in the post COVID-19.
Unknown Speaker: The market in the last few years, but the team continues to execute well in surgical pricing. So youre seeing low to mid single digit pricing execution, largely beginning of the year pricing activity and really value based pricing for some of our businesses that are positioned quite well and have a technological advantage.
Unknown Speaker: <unk>.
Unknown Speaker: Volume, we're definitely seeing headwinds in certain spaces. We call that out when you look at general industrial and food and pharma volumes down in the mid single-digit range there, but on the margin side and favorable mix side, largely being offset by those two impacts. It's also I want to point out another thing we had a
Unknown Speaker: Volume was definitely seeing headwinds in certain spaces, we called that out.
Unknown Speaker: When you look at general industrial.
Unknown Speaker: Food and pharma and volumes down in the mid single digit range there but on.
Unknown Speaker: On the margin side and favorable mix side being offset by.
Unknown Speaker: Largely being offset by by those two impacts.
Unknown Speaker: There's also one thing I want to point out. We had a very successful launch of a product called AutoTorque in our commercial vehicle market. It's doing extremely well, and that will continue to grow for time. The other thing I want to point out is that trailer bills this year are artificially low. What you're seeing is the capex spending being put towards trucks to avoid expensive requirements coming in the 2027 model year. So the trailer market will rebound as well next year and continue to grow into 2026. So we're still excited about that business in the future.
Unknown Speaker: Also I want to point out another thing we had a very successful launch of a product called <unk> and our commercial vehicle market is doing extremely well and that will continue to grow over time. The other thing I want to point out is the trailer builds this year are artificially low what youre seeing is the capex spending being put towards truck to avoid expensive.
Unknown Speaker: <unk> requirements coming in 2027 model year. So the trailer will rebound as well next year and continue to grow into 2006. So we're still excited about that business in the future.
Speaker Change: Okay. Thank you.
Jeffrey David Hammond: Thank you. The next question is a follow-up from Jeff Hammond from KeyBank Capital Markets.
Unknown Speaker: Thank you next question is a follow up from Jeff Hammond from Keybanc capital markets. Your line is now live.
Jeffrey David Hammond: Jeff, we lost you. Hey guys. Yeah, I know. I don't know what happened there, just on I guess, you know, I'm just trying to get the shape of how it may be at a, you know, the midpoint of the guidance or baseline, it sounds like, you know, AST is up slightly sequentially, but You know, just to, you know, at the midpoint of the guidance, like how much of a step up do you need, you know, into the second half, you know, to kind of hit that midpoint?
Jeffrey David Hammond: Definitely last year, Hey, guys.
Speaker Change: I don't know what happened there.
Jeffrey David Hammond: Just I guess.
Jeffrey David Hammond: I'm, just trying to get the shape of it.
Jeffrey David Hammond: Maybe.
Jeffrey David Hammond: The midpoint of the guidance sort of baseline it sounds like.
Jeffrey David Hammond: ASP is up slightly sequentially, but.
Jeffrey David Hammond: Just at the midpoint of the guidance like how much of a step up do you need.
Jeffrey David Hammond: Into the second half to kind of hit that midpoint.
Unknown Speaker: Yeah, so Jeff, as we said, right, we're gonna see a sequential improvement in the second quarter over the fourth quarter. You know, we talked last quarter and then reiterated again today that we believe the first quarter is the lowest in AST, and we should see sequential improvement into the second quarter. The second half includes about a double-digit, low-double-digit improvement in AST in the second half versus the first half. You know, we're seeing signs of that so far, but the timing of which is still up in the air. But that's sort of what we've included in the guide for the second half.
Jeffrey David Hammond: Yeah, So Jeff as we said right, we're going to see a sequential improvement in the second quarter over the fourth quarter we've talked.
Unknown Speaker: Okay, then that second half, your ramp is that Unknown Speaker, more market recovery, or is that, you know, some of the investments you're making kicking in synergies from, you know, NexEdge and Leantech kind of coming together.
Unknown Speaker: Last quarter, and then reiterated again today that we believe the first quarter is the bottom in AFP.
Unknown Speaker: It's all of the above, Jeff, as you describe it.
Speaker Change: And we should see sequential improvement into the second quarter. The second half includes about a double digit low double digit improvement in asps in this in the second half versus the first half.
Speaker Change: We're seeing signs of that so far.
Jeff: But the timing of which still up in the air.
Speaker Change: But that's sort of what we've included in the guide for the second half.
Speaker Change: Okay, and then that second half you'll ramp as that.
Jeff: More market recovery or is that.
Speaker Change: Some of the investments, you're making kicking in synergies from.
Speaker Change: Next edge and lean to kind of coming together.
Speaker Change: It's all of the above Jeff as you described.
Unknown Speaker: Okay. Um, and then just, you know, on the ceiling, I guess. It's kind of the best way to think about organic, kind of flat, and the first half is, You know, got tough, tough comps and negative, and then and then the second half you get some growth.
Unknown Speaker: Okay.
Speaker Change: And then just on sealing I guess.
Unknown Speaker: It was kind of the best way to think about organic is kind of flat in the first half is.
Unknown Speaker: Tough tough comps and negative in the second half you get some growth.
Unknown Speaker: There is definitely a softer Q3, Q4, you know, period of time, so we would probably, you know, include it in our guidance range is reflective of what you just said, correct? and then, of course, the addition of AMI.
Unknown Speaker: There is definitely a softer Q3 Q4 period of time, so we would probably.
Unknown Speaker: Included in our in our guidance range is reflective of what you just said correct.
Unknown Speaker: And then of course, the addition of IMI.
Unknown Speaker: The good news is that the backlog in all three of those businesses grew as well in the first quarter. So we are seeing some momentum there as well.
Unknown Speaker: Okay. The good news is all of the backlog in all three of those businesses grew as well in the first quarter. So we are seeing some momentum there as well.
Unknown Speaker: Okay, thanks so much, guys.
Speaker Change: Okay. Thanks, so much guys.
Unknown Speaker: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to management for any further closing comments.
Speaker Change: Thank you we've reached end of our question and answer session I would like to turn the floor back over to management for any further or closing comments.
Unknown Speaker: Thank you for your time today. It was a pleasure. We look forward to the conversations later. Bye.
Speaker Change: Thank you for the time today was a pleasure and we look forward to the conversations later.
Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
Speaker Change: Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.