Greetings, and welcome to EnPro Industries' Third Quarter 2022 Earnings Review Conference. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, James Gentile, Vice President of Investor Relations. Thank you. Please go ahead.

Thank you, Donna, and good morning, everyone. Welcome to EnPro's Third Quarter 2022 Earnings Conference Call. I'll remind you that our call is being webcast at enproindustries.com, where you can find the presentation that accompanies this call. With me today is Eric Vaillancourt, our President and Chief Executive Officer; and Milt Childress, Executive Vice President and Chief Financial Officer. Please note that in the third quarter of 2022, the Engineered Materials segment has been classified as a discontinued operation following the early September announcement to divest the remaining Engineered Materials businesses, GGB and GPT both of which are expected to close this month. All financial information discussed in this conference call is based on the continuing operations of EnPro, which exclude the Engineered Materials segment. Included in the press release are schedules showing quarterly recasted financial data based on continuing operations since the first quarter of 2021. Before we continue today's discussion, a friendly reminder that we will be making forward-looking statements on this call that are not historical facts. These statements involve a number of risks and uncertainties, including those 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 GAAP measures are included in the appendix in the presentation materials. Also note that during this call, we will be providing full year guidance which excludes changes in the numbers 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 third quarter. The impact of foreign exchange rate changes subsequent to the end of the third quarter, interest rate increases differing from assumptions outlined in guidance, impacts from further spread of COVID-19 or other variants and environmental and litigation charges. We do not undertake any obligation to update these forward-looking statements. And now it is my pleasure to turn the call over to Eric.

Thanks, James, and good morning, everyone. Thank you for your time today as we review our third quarter. The organization is energized and firing on all cylinders, focused on building upon our foundational Sealing Technologies and Advanced Surface Technologies businesses, following the expected exit of the Engineered Materials segment announced in early September. Now on to our third quarter highlights. We delivered another strong quarter, driven by exceptional performance across both the Sealing Technologies and Advanced Surface Technologies segments. The differentiated value of our innovative solutions and vast capabilities of our teams across the company continue to shine. We are pleased to report outstanding quarterly results, highlighted by double-digit organic revenue growth and strong margin expansion that reflects the resilience of our business model. In the third quarter, sales of $280 million increased 34% year-over-year, with organic sales increasing 16%. Our order trends remained firm in the third quarter despite a volatile macroeconomic and geopolitical backdrop. Our top line growth was driven by volume increases in many of our served markets, effective pricing initiatives, and the addition of NxEdge. Our third quarter adjusted EBITDA of $71.3 million increased 70% year-over-year and adjusted EBITDA margin expanded 550 basis points to 25.5%, driven primarily by the addition of NxEdge, strong organic sales growth, and effective pricing strategies in response to inflationary pressures. The portfolio reshaping efforts we initiated in 2019, along with the tireless work of the teams across EnPro, have helped us build a streamlined portfolio of market-leading businesses, meeting critical needs of customers. Our go-forward businesses operate in attractive end markets where we are well positioned for growth through our enduring technological advantages. Our portfolio transformation has also created the foundation for continued profitable growth. Our optimized portfolio of businesses generates higher margin and cash flows and enhanced return on invested capital, reflecting value provided to our customers through proprietary technology, applied engineering expertise, and process know-how. Additionally, a growing proportion of our revenue mix is derived from the recurring or aftermarket portions of our businesses, providing us with enhanced stability through market cycles. We have also made substantial progress on gross margin improvement over time. For context, the gross margin just before we began our transformation efforts was 31%. Today, our portfolio of technology-driven products and solutions shows a gross margin of approximately 40%. Following the completion of the Engineered Materials divestitures, we will have reduced our European exposure, eliminated our sales to the automotive market, and significantly reduced our remaining oil and gas exposure. Our revenue generated in North America will account for approximately 70% of our total revenue and our aftermarket and recurring revenues will exceed 50% of total sales. We will continue to pursue selective strategic acquisitions that fit our criteria of both broadening our already strong reach with technology-enabled products and solutions, and offering opportunities for strong recurring revenue. Speaking of acquisitions, it has been nearly a year since we added NxEdge to our family. We are pleased with the leading-edge capabilities that NxEdge has brought to our semiconductor business. We are seeing the benefits of the NxEdge combination with our Advanced Surface Technologies businesses and our newly welcomed colleagues are integrating well into our broader organization and culture. The success of NxEdge and the opportunities that it has created for our business demonstrate the merits of our M&A strategy, bringing in leading businesses and applying our platform to accelerate growth. With that, I will now turn the call over to Milt for a thorough look into our financial results for the quarter.

Thanks, Eric. Sales of $280.1 million in the third quarter rose 33.6% compared to last year. This revenue growth resulted from increased volume in the semiconductor, aerospace, food and pharma, and heavy-duty truck markets, the effect of pricing adjustments due to inflation, and the addition of NxEdge. These gains were somewhat diminished by decreased sales from unfavorable foreign exchange rates and the divestiture of our polymer components last year. Organic sales for the quarter were up 16.2% compared to the same period in 2021. Adjusted EBITDA reached $71.3 million, a 70.2% increase year-over-year, driven by volume growth, pricing adjustments, and NxEdge's contribution, although this was partially offset by unfavorable currency translations and the previous year's divestiture. The adjusted EBITDA margin was 25.5%, expanding approximately 550 basis points from the third quarter of 2021. Corporate expenses fell to $9.1 million this quarter from $11.6 million last year, mainly due to reduced costs associated with acquisitions, divestitures, and the CEO transition last year. Adjusted diluted earnings per share climbed to $1.91, an increase of 64.7% from the prior year. Strong operating results and the contribution from NxEdge helped offset higher interest expenses. In terms of segment performance, Sealing Technologies saw sales rise 7.5% to $157.9 million, fueled by robust demand in aerospace, food and pharma, and heavy-duty truck sectors, alongside pricing actions, although foreign exchange impacts and the prior year's divestiture had an adverse effect. On an organic basis, sales grew 16.6%. Adjusted segment EBITDA for the third quarter was $39.7 million, up 15.1%, driven by volume growth, pricing strategies, an improved mix, and operational enhancements in our heavy-duty truck segment, partially impacted by currency translations. The adjusted segment EBITDA margin improved by 160 basis points to 25.1%. When excluding the effects of the divestiture and foreign exchange translations, adjusted segment EBITDA was up 23.4% compared to the same period last year. Before moving to advanced surface technologies, it's worth noting that historically, two locations in our Sealing Technologies segment used the LIFO inventory method. During the third quarter of 2022, we adjusted our inventory accounting for these locations to the FIFO method for better alignment with industry practices. This retrospective change positively impacted adjusted EBITDA in the Sealing Technologies segment by $2.4 million in the first half of 2022. In the Advanced Surface Technologies segment, third quarter sales reached $122.5 million, up 90.5%, propelled by the NxEdge acquisition and sustained strong demand in the semiconductor market. On an organic basis, sales rose by 15.1% year-over-year. Adjusted segment EBITDA more than doubled to $39.9 million, driven by NxEdge and strong organic sales, with adjusted segment EBITDA increasing by 27.3% when excluding the impacts of NxEdge and foreign exchange translations. We are continuing to invest in AST to support its growth, including capacity expansions and enhancing technological solutions for the semiconductor market. Recently, the U.S. government announced new trade regulations regarding semiconductor technology exports to China. We are currently assessing the potential impacts of these regulations on our business but expect a nominal effect on AST sales in the fourth quarter and minimal impact into next year based on our analysis. With our strong portfolio, talented workforce, and robust innovation engine, we believe AST is well-positioned for long-term organic growth as the semiconductor market expands. On the financial front, we concluded the quarter with $166 million in cash and total debt exceeding $880 million. Following our announcements in early September, we anticipate after-tax proceeds from the sale of the two remaining Engineered Materials businesses to be around $290 million, expecting to finalize these transactions this month. Free cash flow from continuing operations for the first nine months of 2022 stood at $101 million, a rise from $67 million last year, primarily due to higher EBITDA. We successfully repatriated $186 million in a tax-efficient manner during the first nine months of 2022, with an additional $50 million anticipated in the fourth quarter, bringing our total for the year to over $230 million. In September, $200 million of EnPro's cross-currency swaps matured, yielding more than $27 million in savings since inception in March 2018. We also received an additional $27 million from the settlement of the swap at maturity in mid-September. Furthermore, we made a $5.8 million payment in the third quarter regarding the Passaic River environmental liability, which predates our spin-out as an independent company. Court approval for the Passaic River settlement is anticipated within the next 12 to 18 months. Considering all these factors, we expect our net leverage ratio to fall below 2x this year's adjusted EBITDA by the end of 2022. We will continue to allocate available capital for long-term growth through both organic initiatives and strategic acquisitions while maintaining a solid balance sheet. In October, the Board of Directors approved a new $50 million share repurchase program, active through October 2024, replacing the previous authorization of the same amount that expired in October, without any prior purchases. During the third quarter, we declared a quarterly dividend of $0.28 per share, with total dividends paid over the first nine months reaching $17.6 million. Now, addressing our 2022 guidance from continuing operations, underlying demand and order trends remain robust for the fourth quarter, amidst macroeconomic and geopolitical uncertainties. Based on current factors, we are raising our adjusted EBITDA guidance from continuing operations to between $253 million and $260 million on revenues of $1.05 billion to $1.09 billion. This adjustment reflects our sustained execution and robust portfolio of high-margin industrial technology businesses, implying an adjusted EBITDA margin of approximately 24% for the year. We also anticipate adjusted diluted earnings per share from continuing operations to be between $6.55 and $6.90. Furthermore, earlier in September, we indicated that $34 million to $36 million of our previous adjusted EBITDA guidance of $270 million to $280 million related to the now-discontinued Engineered Materials segment. Therefore, our updated guidance for adjusted EBITDA from continuing operations represents a $16 million to $17 million increase compared to the prior guidance measure, including the previously mentioned $2.4 million benefit from the inventory accounting change. With that, I'll turn the call back to Eric for closing remarks.

Thanks, Milt. I'm proud of our team and our many accomplishments; I'd like to take a moment to thank all of our colleagues across EnPro for your dedication and outstanding performance. Your hard work continues to be the foundation of our success. I'd also like to take a moment to thank our GGB and GPT colleagues for their hard work in building world-class businesses. We are confident that you all have bright futures ahead. We have executed on our stated intention to reshape our portfolio to focus on the areas in which we have the strongest technological and process advantages. We are moving forward as a streamlined organization centered on our foundational Sealing Technologies and Advanced Surface Technologies businesses, both of which are leaders in attractive markets. As we enter our next chapter, we are focused on building on our leadership positions. Our strategic roadmap shows promising opportunities for both organic and inorganic growth and we expect to use free cash flow and ample balance sheet capacity to prudently execute on these long-term growth initiatives. Our raised 2022 guidance implies adjusted EBIT margins of approximately 24%, up from 14% in 2019 when we began our portfolio reshaping strategy. We have remained steadfast on delivering outstanding financial results and enabling the supporting development of our colleagues in the communities in which we operate. 2022 has been an important year for EnPro as we build the company into a growth engine for the future. I am proud of our team and our many accomplishments that have brought us here to this point. There has never been a better time to be a part of EnPro. I'm honored to be here with you all and appreciate your support as we drive to capture the compelling opportunities we see ahead. Thank you again for joining us today. We appreciate your interest in our company. Now I'll open the line to questions.

The first question is coming from Jeff Hammond of KeyBanc Capital Markets.

I'll start with a standard update on the durability of the semiconductor market. Milt, you mentioned the regulations in China, but given the mixed news we've seen regarding semiconductors, how do you see growth shaping up for 2023? Also, do you have any updates on your investments in the U.S. for the major build-out?

Thanks, Jeff. That’s a big question with many parts, so let me address it. Eric and I will add to this discussion. To start, I want to mention the headline news regarding various semiconductor companies and the new trade regulations involving semiconductors to China. Overall, our bookings and backlog remain strong, and we aren't currently seeing any signs of a slowdown in our business. Our outlook and backlog extend a couple of quarters but don't go far beyond that. Thus, our visibility for a full year ahead in 2023 is limited, though that’s normal for our business. What’s crucial for us is maintaining a long-term perspective on the semiconductor industry. We believe that increasing demand for chips due to technological evolution will drive strong growth in the long run. While there will be some ups and downs, as seen in many markets, we are confident in our ability to leverage our technology differentiation during any potential market downturn, which could strengthen our position with leading customers. Additionally, I want to highlight that around 50% of our semiconductor revenues are recurring, meaning they are tied more to wafer consumption than to new equipment builds. We are also well-positioned geographically, particularly with ongoing investments in the United States. Eric, would you like to add anything?

I think we'll also see growth just from our vertical integration strategy that continues to gain speed from our acquisition of NxEdge. The cleaning, coating, and refurbishment is going to be strong throughout the cycle, as noticed with all the recurring revenue that should continue to go well. And I think we're positioned very well for the long term. In addition, we focus primarily on the advanced nodes, and they continue to accelerate over time as well. So we're looking for continued strong performance there over the cycle.

Eric, do you want to comment or you want me to...

On Arizona?

Yes. So we're investing for organic growth as well. We'll close on our real estate property in Arizona before the end of the year. And that's a pretty substantial investment. It's less than $15 million. And then we have to outfit it and get ready to go to support some key customers in Arizona, you know their names. That build-out will happen over the next 12 to 18 months to position us well for 2024 and beyond. So we're excited about that investment as well. We don't have much more to add regarding the trade restrictions and regulations beyond what I said earlier. However, we believe that our focus on advanced nodes and our positioning will help protect us, as much of the product and technology was not being sold to China prior to the implementation of the trade restrictions.

Okay. That's all very helpful. Looking at your updated guidance, it seems like there’s a significant decline. I understand there’s some seasonality involved, but it appears to be more than usual. I’m curious if there’s anything to interpret regarding the trends in orders and backlog, particularly when comparing the third quarter to the fourth quarter, excluding the Engineered Materials guidance.

Well, we had a stronger third quarter this year than we've had historically. Part of it is we're focused now on continuing operations, and with continuing operations, we don't have as much exposure to the typical slowdown in Europe in Q3. So you see the impact of that when you look at our year-over-year performance Q3, continuing ops versus Q3, continued ops of last year, or if you just go back and look at the typical seasonality pattern, I guess that's the way I should state it. And in the fourth quarter, our backlog remains constructive, our book-to-bill remains above 1 as a company. So we're expecting to complete the end of the year in good fashion. The actual results of Q4 oftentimes are driven by timing of shipments at the end of the year, particularly around markets like nuclear and aerospace, which can shift a bit.

There's also a little bit of caution perhaps for Europe slowing down as a result of the Ukraine situation that's affecting some of our European vision a little bit with the Sealing Technologies segment. And so there's a little bit of uncertainty there that we've got factored in.

Sales to Europe are roughly in the ballpark of 13% to 14% of total sales on a pro forma basis. And so while it’s down considerably, it still has an impact.

The next question is coming from Steve Ferazani of Sidoti.

Just want to get an update on the closure of the deal. Sounds like you said GGB should close this month. Anything that would have slowed that down? And then what's the timing on the Garlock pipeline?

Yes. Thanks, Steve, for the question. We're moving forward toward closing. As we mentioned in September when we announced the deal. We had a signed agreement on the sale of GGB and we've been moving along on various regulatory approvals, and we felt we're in good shape and confident that we'll be closing that transaction in November. When it comes to GPT, we're not as far along. We still believe we will complete that deal in September, although there are a few more hurdles to cross before we get the completion there. So that will be a simultaneous signing and closing. So sitting here today, we're not holding a signed sale agreement. But once again, we are still confident that we'll be able to get that across the finish line later this month.

And the expectation would be primary uses to be debt reduction? And anything you could say about what the pipeline is looking like out there for the next 6 to 12 months?

Initially, we will focus on paying down our existing revolver debt. We have already reduced our 364-day term loan. We plan to settle any outstanding amounts related to our revolver debt and will decide what to do with the remaining balance in the short term. We can now invest with some meaningful interest income, and we are exploring options with our treasury team on how to deploy this cash. Additionally, we are actively working on our pipeline and tracking several opportunities. While the timing is always uncertain, this remains a vital part of our daily operations.

And then in terms of as we get through this quarter and now without Engineered Materials, your businesses are a little bit different now, but still hearing a lot of issues with inflationary pressures, particularly energy costs, how that might be impacting you. Also that supply chains remain not constructive how that might be impacting your business. So if you could just talk about inflationary pressures, supply chain issues as we get into the fourth quarter.

In general, supply chain pressures have eased and continue to get a little bit better over time. In addition, energy has actually come off a little bit. We just were able to negotiate a contract with one of the sealing divisions, it was much less than it had been in the past. So right now, I see things trending in a positive direction. There's more availability and price in general is falling off a little bit. But regardless, we still do an outstanding job of capturing price. And Europe is a little different. Energy prices there, of course, are a little crazy and a little uncertain. At the same time, it's about 13% to 14% of our overall business. And the team there is doing an outstanding job in mitigating the situation.

Regarding corporate costs, you had anticipated they would remain elevated due to the absence of Engineered Materials, with the intention of maintaining that level as revenue increases over time. However, corporate costs were reasonable this quarter. How do you view that trend moving forward?

We’re just in the process now of going through our budgeting process, and we’ll provide more clarity in the quarter ahead on just our outlook for the coming year, including corporate costs. So I’ll just leave it at that right now. We mentioned in September that when we indicated the $34 million to $36 million contribution to our prior guidance from Engineered Materials that, that was inclusive of so-called stranded costs, which are costs that had been allocated to that division. So those costs have to be reallocated going ahead to our existing businesses or perhaps some held at corporate, which could have some impact – a little impact on how corporate costs look going into next year.

The next question is coming from Ian Zaffino of Oppenheimer.

There's been just a lot of changes in the portfolio, it seems like it's all for the good. How are you looking at maybe your mix domestic versus international going forward? If you kind of look out I'll call it, three years or so when you've done more M&A like you were talking about, where do you think that ultimately settles out?

Yes, I would like to address that, and then Eric and I can discuss it further. I want to clarify that we are not purposely steering our business to focus more on North America. While we are not dissatisfied with this outcome, our primary goal is to strategically grow our business and identify opportunities that align with our portfolio and our future direction. We are certainly factoring in geopolitical issues and identifying where we expect growth to occur based on the markets we are targeting, much like what we are doing now with semiconductor opportunities through increased onshoring in the United States. I believe we are making the right strategic decisions for the business, and we are also mindful of global developments.

I think Milt covered it nicely. I think first, it's strategy and the right opportunities in the right end markets and then it's geography.

I want to revisit the topic of pricing for clarification. Did you indicate that pricing is either rolling off or slowing down? How does your pricing compare to costs? What is your outlook for pricing? Is all of this considered true pricing, or are there any surcharges? I'm trying to understand how potential changes in inflation might affect pricing.

No, we're still doing a good job at capturing price in this environment. And the services and products we provide create a lot of value, and we capture the value that we create in general. Surcharges in some cases are rolling off, they're mostly freight. And so container freight is an example. But we don't really capture that as price; they come in and go out. So our pricing power still exists. We're still paying good attention to it, and I continue to think we'll capture value as we move along.

And just a clarification on that, Ian. In Eric's remarks, he suggested that maybe raw material cost increases had eased a little bit.

Commodity pricing is starting to fall a little bit, which helps us as well.

On your COGS side, not on your revenue side, correct? I'm just trying to differentiate the two.

Correct.

Thank you. At this time, I'd like to turn the floor back over to Mr. Gentile for closing comments.

Thank you for your time today, and we appreciate your interest in EnPro.

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.