Good morning. My name is Susan, and I will be your conference operator today. At this time, I would like to welcome everyone to the EnPro Industries’ First Quarter 2015 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Mr. Dan Grgurich, Director of Investor Relations. You may begin your conference.

Thank you, Susan. Good morning. And welcome to EnPro Industries quarterly earnings conference call. I’ll remind you that our call is being webcast at enproindustries.com, where you can find the slides accompanying the call. Steve Macadam, our President and CEO; and Milt Childress, Senior Vice President and CFO will begin their review of our first quarter performance and our outlook in a moment. But before we begin our discussion, I will point out that you may hear statements during the course of this call that express belief, expectation or intention, as well as those that are not historical fact. These statements are forward-looking and involve a number of risks and uncertainties that may cause actual events and results to differ materially from such forward-looking statements. These risks and uncertainties are referenced in the Safe Harbor statement included in our press release and are described in more detail along with other risks and uncertainties in our filings with the SEC, including the Form 10-K for the year ended December 31, 2014. We do not undertake to update any forward-looking statements made on this conference call to reflect any change in management’s expectations or any change in assumptions or circumstances on which such statements are based. Our earnings release and conference call presentation materials contain additional disclosures regarding non-GAAP financial information, collective references to EnPro and our subsidiaries, the deconsolidation of Garlock Sealing Technologies or GST and pro forma financial information presented, as if GST was reconsolidated for financial reporting purposes. These disclosures are important to understanding comments we will make on today's call and we urge you to read them carefully. And now, I will turn the call over to Steve.

Thank you, Dan, and good morning, everyone. Activity levels in our markets were mixed in the first quarter. Our North American heavy-duty truck markets benefited from higher demand from both fleet operators and original equipment manufacturers, and we saw strength in other markets, including defense, chemical and aerospace. However, lower commodity prices let the softness in the other sectors, most notably, in oil and gas, and steel. In North America refinery maintenance activity was lower as oil and gas companies took advantage of profitable conditions in refining to offset lower profit and slowing upstream operations and projects. Steel mill activity was also negatively impacted by the slowdown in pipeline building projects and the repel effect from doc strikes on imported goods from the West Coast. These conditions affected deconsolidated GST, as well as CPI. The strong dollar as evidence by the 17% year-over-year decline in the euro to dollar exchange rate was also a significant macroeconomic factor affecting our result in the first quarter. Our consolidated sales were down 3% for the quarter and pro forma sales, which include the results from deconsolidated GST were down 4%. Excluding the impact of currency translation and the year-over-year impact of our acquisitions net of a divestiture consolidated sales were up 1% and pro forma sales were level to last year. The loss provision on FME’s contract with EDF that we announced last week, currency translation and other unusual items that Milt will cover in more detail shortly had a substantial impact on our profitability in the quarter. Our consolidated adjusted EBITDA of $28 million was down 14% from a year ago and our pro forma adjusted EBITDA of $39 million was down 15%. Excluding the EDF loss provision and the negative effect of foreign exchange translation, adjusted EBITDA would have been up…

Thank you, Steve and good morning everyone. Our consolidated first quarter sales were $277.5 million, down about $10 million or 3% from the same period of 2014. Excluding foreign exchange and acquisitions net of the GRT divestiture, organic growth was about 1%. By geography, on a constant currency basis, we saw little organic growth in Europe as a 1% increase in Sealing Products sales was offset by lower Engineered Products. Markets were mixed as increases in European automotive were offset by lower sales to renewable energy, general industry and process manufacturing. In North America, organic sales grew 2% as Sealing Products sales increased 7% largely due to stronger sales to heavy-duty trucking, nuclear and aerospace markets that more than offset engineered product sales, which were 13% lower due to decreased sales in fluid, power, automotive and oil and gas. Gross profit for the quarter of $89.8 million was $6.7 million or 7% lower than in the first quarter of 2014 and gross profit margin decreased to 32.4% from 33.6%. Favorable volume and mix particularly in Sealing Products and Power Systems and higher prices in most of our businesses were more than offset by the $6.2 million loss provision in Power Systems and the negative impact of currency across the company. SG&A was down $1.6 million or 2% from the first quarter of 2014. Of this decline, $1.1 million was due to a drop in corporate related expenses. Sales in the Sealing Products segment were $160.9 million in the first quarter, up nearly 4% or $5.9 million over the first quarter of 2014. Acquisitions net of dispositions contributed $2.8 million but this was more than offset by roughly $6 million in unfavorable foreign currency translation. Excluding currency and the net effect of acquisitions, sales in this segment were up 7% from…

Thanks, Milt. We will close with a discussion of our outlook for the second quarter and full year of 2015 and then open the line for your questions. OEM order activity remains strong in our semiconductor, aerospace and trucking markets. And we have a healthy backlog and order rate in Power Systems. However, we are continuing to see slowing demand from oil and gas markets as low commodity prices result in reduced project and maintenance spending. In addition, we expect the weakness of the euro and other foreign currencies to impact our results. As we look at the second quarter of 2015 in comparison to the second quarter of 2014, we expect to see a modest decline in sales as foreign exchange headwinds offset secular growth in our businesses. Segment profit margins in the second quarter should be modestly higher compared to a year go based on the volume and mix assumed in our latest forecast. Longer-term, we expect to benefit from our strategic growth initiatives, including growth from new products and our recent strategic acquisitions. Recently provided guidance for the full year outlook in our March 19th Investor Day, I want to update that for you. Our guidance provided a revenue growth range of negative 3.2% to a positive 0.1% and profit margin between 11.4% and 12% based on an exchange rate of $1.08 per euro. The guidance did not include the $6.2 million loss provision taken in the first quarter nor any restructuring or acquisition-related charges. Based on current conditions, I think we are still within the range for that guidance for the year. Now, we will open your line for questions.

[Operator Instructions] Your first question comes from the line of Jeffrey Hammond of KeyBanc. Your line is open.

Hey. Good morning, guys.

Good morning, Jeff.

Good morning, Jeff.

So thanks for the update on the guidance here. Maybe with that, it seems like you’ve been seeing better trends within Sealing, kind of three quarters here of 6%, 7%, 8% growth and conversely CPI seems a little bit heavier. So maybe how are you thinking about those growth rates going forward and maybe kind of change within those segments?

Well, I think you made a good observation, not just at the segment level. Sealing Products is doing great, absent oil and gas headwinds, right. And there is lots of currency exposure in Sealing in total than there is in engineered, engineered both CPI and GGB. The whole segment is by two-thirds Europe based. So even though GGB is actually doing okay in euros but it’s getting hit by translation and CPI is of course getting hit most directly by both, euro strengthening -- sorry euro weakening and the oil and gas pressure. So, I think my view, Jeff is that CPI is probably leveled out at its current -- I mean, the first quarter is always weak for CPI. We did take our restructuring action in Q1, that’s done and implemented. So, we will see some benefits from that throughout the year. CPI is not going to have a great year in total, just with the weakness in its markets. But I don’t think it's going to be kind of worse than where we are today from a demand standpoint. But I think GGB, you can probably layer on what we did last year, plus just a little bit of growth and adjust the whole damn thing for FX and that’s about where we are.

Okay.

Does that answer your question?

No, that’s very helpful. And then so just as we look at the oil and gas facing businesses, how weak were they in 1Q, if you isolate it and what’s kind of the core growth decline you're thinking about?

You want to take a shot?

We have a couple of things going on that have affected our results overall. And I want to come back to foreign exchange and just to highlight one thing is Jeff, we do have some margin compressions that we see, especially in our Garlock business because of product that’s manufactured in U.S. and sold elsewhere. And so I would just add that to kind of tamper when we think about assuming products, there is a headwind there. But offset by some real strong results, we’ve taken actions at Stemco that Steve alluded to. And with oil and gas, I think what we anticipate coming into this year that we would have headwinds primarily with the upstream part of the industry and our sales upstream are fairly small. But what we found is it’s broad-based, I think there is lot of companies have with refineries, trying to take advantage of the current conditions and operating without typical maintenance cycles, which we believe over time will make up for that. But it leaves us here in the interim, depressed activities, they are depressed and affecting our results.

Which primarily affects both GST and CPI. Correct.

Okay. Great. Thanks, guys.

Yeah.

Your next question comes from line of Joe Mondillo of Sidoti & Company. Your line is open.

So, first question just regarding sort of the maintain guidance, if you will. I know there's a lot that goes into that. There is a ton of moving pieces but just looking at that, which sort of essentially guides to roughly flat margins. I'm just curious to hear how you think about achieving sort of flattish margin with what we saw in the first quarter, as well as maybe some more headwinds at sealing segment. So if you could just sort of address that because the Engineered Products obviously has to make up a lot of headway in the last three quarters, given the comparison that you just saw in the first quarter and then if you could address maybe the margins that you are sort of looking at for the rest of the year at Power Systems?

Joe, I think to address it I have to look segment-by-segment. And so if you refer to the guidance that we provided in March during our Investor Day, we had Sealing Products margin being in the 13% range roughly, so about equal to the margin into 2014. In Engineered Products, absent any kind of restructuring which we have taken, we had [Technical Difficulty] but a little bit below our 2014. I do think there's some risks there. It is just my view is there is a little bit of risk there, perhaps offset by some upside at Sealing Products.

And probably little upside at Power Systems.

Correct. Yeah.

Excluding the loss provisions, so.

Okay. So, I guess, let's talk about Sealing segment then. It sounds like you're anticipating that you are going to get some margin improvement as we progress throughout the year to get -- you just have to see that to get to the flat margin? So could you help me understand the dynamic between sort of oil and gas weighing on that segment, as well as the currency weighing on the margin as well, offset by, I guess, maybe Stemco and Technetics? Is the sort of -- is the way to look at it sort of a pure offset? Is that a good way of thinking about all that?

Well, clearly, if you look at improvement that we expect to see year-over-year in Sealing Products, much that’s going to be driven by Technetics Group and Stemco and...

So those businesses will offset sort of the headwind that you’re seeing in oil and gas, and currency?

Yeah.

Okay.

That’s where we see it.

Okay. And then, just lastly and I'll hop back in queue. Could you talk about the capital allocation going forward? And sort of where your leverage is at this point in time after you’ve exhausted the share repurchase? And how you think about capital allocation for the rest of the year going forward? Are you going to deploy anymore cash or at this point in time, after doing all that you’ve done, are you thinking about taking a couple quarters and hopefully, generate some cash before getting back to deploying cash towards all of those strategies?

Yeah. That’s a good question. Thanks, Joe. Last earnings call, Steve, outlined our strategy around capital allocation and then we talked about it again at the Investor Day and at that time we indicated that the way we’re looking at on an average basis knowing there is going to kind of spike up and maybe fall below, but was to look at a net debt to EBITDA target of around two times. And if you look at where we ended up for the quarter with the net of the dividend and the share repurchase and the converts? We ended up right around two times net debt to EBITDA if you exclude the inter-company debt. So we’re right around that target leverage and so at the current time, our focus now is investing in our businesses. We noted previously that we have some higher than normal capital expenditures this year, largely associated with some facility investments and purchases that we’re going to make. And we’re also focused on growing our businesses and hoped to be in a position to move forward with additional investments on the acquisition front, depending on how things shake out there. So I think our focus now between now and the end of the year is really more internally and growing our business.

Yeah. And so, obviously, we announce last week, Joe, that the share repurchase has done, right, that’s still lower into Q2, clearly. And we also announced a while ago that the acceleration of the bond hedge that require some open market purchases by our agent as well, which will begin here in shortly and that will take some period of time. So through the second quarter, I think, what we are going to get that hedge acceleration peak done and so forth and kind of regroup on where we are. So for the back half of the year, we hadn’t anticipated do anything originally, but we are -- now we will see. We’ll see where the share price stays and its going to continue to -- repurchase will be continue to be part of our thinking to the extent we have available capacity and we think that the company is undervalued so.

Okay. And just a follow-up on that, is there -- do you have to get another approval by the Board or is there anything else in place regarding the share repurchase?

No. That’s correct. We would have to get another authorization from the Board, which we do not have today. We've exhausted the full authorization that we have currently.

Okay.

Yeah.

Okay. Great. Thanks a lot.

Your next question comes from line of Todd Vencil of Sterne, Agee. Your line is open.

Hey, guys.

Hey, Todd.

Steve, just kind of dig a little bit bigger picture maybe, obviously, saw that the charge pursue related to the restructuring CPI, where do you guys stand on getting that business where you wanted to be?

Well, there is, I guess, there is two lenses to look at that, Todd. One let just talk about operationally how we’re doing, and then we can talk about financial performance. And when I talk about operational, I am not talking about manufacturing, I’m talking about everything from commercial effectiveness to on time delivery to our ability to be world class in our application to engineering and so forth and so on, right. So the stuff we actually work on on a day-to-day and week-to-week basis. I think, we are -- I would say we’re at -- if when Ken Walker to go with the business, we were performing at two out of 10. I would say, today we’re performing at 5.5 or 6 out of 10, roughly, maybe between 5 and 6 out of 10. So we’ve made a lot of progress. We have a lot of stuff underway. But the team is working really hard and making great progress. We’ve strengthen our application to engineering. We’re upgrading the talent in the commercial team. We’re restructuring how the commercial team works in terms of we put a strong guy in as our commercial lead there that came from another part of EnPro. He is only been on the ground for three months now, which the new operational -- VP of Operations we have there, he is doing an outstanding job, he has been with us for a little over a year now. So when I go to the facilities, when Ken and I both visit facilities, Ken was just in the U.K. I was recently in Stafford, the main plant in the U.S. There are a lot of positive signs and there’s a lot of good feedback from customers on how we are doing. And we won new customers.…

Got it. Thanks for that. And how about the distribution center Stemco? How is that? I may have missed it, but has that operating for you?

Great. Team has done a fabulous job. So we’re doing great. I mean, it’s running just like we wanted it to -- just like we wanted it to be running a year ago. So it took us longer but no, team has done a great job. Everything is going great. And so we are working to shift more and more of our customers towards the buying behavior to place one order and get one shipment which disallows to do. So yeah, we are pretty pleased with where we sit in Stemco. A lot of things are going well in Stemco. I mean, it's doing great. We’ve got some nice early wins from the new TrailerTail business and new commercial wins. We -- we had a good first quarter, really good first quarter in Stemco. And we are positive on where that business stands in the outlook so.

Good. And then last one for me. This is -- I know this is tricky to answer, but can you -- I appreciate the update on the ACRP, where it stands with the court dates and all that. Can you give us any kind of update on how and if conversations might be going with the current claimant's and maybe that potential path of resolution?

I really have tried to stay away from any comments on -- I certainly can’t tell about any details with conversations. I’d say it’s the same status it’s been for a while and I would describe this off again, on again, not very productive.

Got it. Thank you.

[Operator instructions] Your next question comes from the line of Justin Bergner of Gabelli & Company. Your line is open.

Good morning everyone.

Hey Justin.

Hey Justin.

My first question just relates to the balance sheet and the sort of debt-to-EBIDTA target. I just want to make sure I’m focusing on the right numbers. If I exclude the intercompany debt, I guess, for EnPro without GST reconsolidate, it looks like there's 340 million of long-term debt and $72 million of cash. That would seem to get me to a net debt to EBITDA ratio meaningfully below two times but I’m probably not looking at the right way?

Let me -- give me one second. Here Justin, I’ll open up our balance sheet. Yeah what -- okay so we have long-term debt $340 million roughly, right and the cash and cash equivalents of $72 million and that’s $268 million. And I was saying we were roughly at two times and our adjusted EBITDA for the quarter was -- let me put it for trailing 12-month basis is roughly 150 or so. So I was rounding earlier. I think it's going to be rounding it two times and might be a little bit below that. So I think you are right.

Okay. Maybe I was looking forward to the sort of low end of the guidance of $134 million to $146 million of operating income plus depreciation?

If you follow-up -- why don’t you follow-up with Dan after the call and we can kind of just go through and check and make sure all of our numbers align.

Okay.

But I think we are kind of rounding it about two times but little bit below that.

Okay. And is that a net debt to adjusted EBITDA or net debt to EBITDA?

It’s -- the way we look at it is net debt to adjusted EBITDA.

Okay. I guess, the reason I was asking is what I'm driving at is you talked about using cash to grow the business and I was just curious, do you still have a good appetite for acquisitions and are there a lot of things still on the pipeline?

Yeah. I mean, we do expect -- we are user of cash at this time. Our typical seasonal cycle is that we used cash in the first part of the year and generate in the last part. So we expect to be generating cash from operations throughout the year. And we've always said that this target is simply that it’s a target if we find good opportunities that make sense for us strategically. We’ve got access to capital. We still have a lot of availability under our revolver and we have access to other capital should we need it. So it’s where -- how we expect to be on average and where times will fall a little bit below it and at other times, we might spike up if we find the right investment opportunity that we want to pursue. So does that help?

Yes. I guess, what I was curious about is how does the acquisition pipeline look? Is that still sort of 2015 focus for you after some recent deals?

Well certainly a focus. Let me jump in. Certainly a focus and we do have, we do have a few opportunities in the pipeline that we would say are still likely. And when I say likely I am talking in the 70% range not the 95% range but more than 50% and more likely than 50-50. As you know with acquisitions, it’s always hard to gauge because you don’t know. About the seller side and you don't know who else is in the game looking for thing -- looking at the same assets and so forth. But we’ve still got a few in the pipeline that we are hopeful will happen this year.

Okay. That's good to hear. Turning to a quick question on the growth of the business, is it possible for you to sort of breakout Sealing Products between Garlock, Technetics and Stemco from sort of an organic constant currency point of view?

Well, as you know, we don’t disclose division results within the segment. We mentioned earlier that we expect stronger growth in Technetics. There is going to be some -- there is a European exposure there. So there’ll be some currency issues. Stemco there’s not much in the way of currency impact and that business is being good. The backlog of trailer bills continues to remain strong even though new orders are softening from a year ago. So we expect favorable conditions for the balance of the year at Stemco. And then we talked about the story at Garlock which is some headwinds in oil and gas and steel. So I think that’s our general -- general thoughts on the composition, if you look at the businesses within Sealing Products.

Okay. Is there any meaningful -- it seems like Stemco, sort of, the strength is continuing in [aero] [ph] and trailer bills. It seems like in Technetics, you are noticing some notable improvement in that business versus sort of maybe earlier quarter growth rates. Is that a fair characterization?

Yeah. I think it is. We’ve been successful in the aerospace market, landing some pretty significant projects that if you go back and look at our historical calls, I am sure I referenced those early last year and even frankly late in 2013. Those projects in aerospace because of the nature of that business take a while to come online and get up to full run rate because of the qualification process. And a lot of time, it’s a design phase then a qualification process where we a working very closely with our customers. And so we've been pretty successful there over the last 18 months. And we are starting to reap some of the benefits and that should continue.

Great. Thank you for taking all my questions.

You are welcome.

And your next question comes from the line of Joe Mondillo of Sidoti & Company. Your line is open.

Hi guys thanks for taking the follow-up. One, I wanted to ask you regarding the pro forma balance sheet that you have in the release, how does if that compared to, if you end up reconsolidating GST. Is that a pure -- what the balance sheet would look like after you create the trust and -- or is that not accounting for settling the liability and going through that?

Yeah. Joe, it assumes confirmation and moving forward under the terms of the second amended plan of reorganization. So all the economics of that plan that we’ve talked about previously are embedded in the pro forma balance sheet….

….which includes the establishment of the truck.

Yes. So you will see that in assumptions made that the initial part of that truck was funded. And therefore, there's less cash on the balance sheet by corresponding amount.

I got it.

Short answer is it does reflect that. Now, Joe, if we were able to and successful in reaching a settlement that would include both the future claims representative and the current Claimants Committee. Remember, the second amended plan is only supported by the future claims representative, even though the trust handles everyone. It handles correct and future claims, right. But if we were to reach an agreement, it might be a little -- it would be different than what’s in that, right. So…

Right. I understand.

Yeah. Okay.

Okay. Thanks. Also, I wanted to ask you sort of the outlook on Power Systems regarding what you see in the backlog and how any sort of near-term or short-term work that you've been getting suggests how the margin sort of plays out throughout the year? I know that’s sort -- it’s a lumpy business, it’s tough for us to sort of see how that’s going to sort of play out?

Yeah. Look, I think, the Power Systems, we feel likely -- I think we guided in New York, if you exclude this provision and it’s important to excluded the provision because just keep in mind, just everyone hopefully understand this, nobody has asked questions about it. So, hopefully everybody does. To the extent, the FX rates in any future quarter different from 110. We have to adjust that provision one way or another. So for example, at the quarter we are over today and the rate were just about 112, we would reduce the amount in that $6.2 million provision, because the $6.2 million provision is based on where the exchange rate ended at the end of Q1, okay. Likewise, if the FX were to go to the other way from now to the end of the quarter and be below 1.10, we would have to adjust it to be bigger, right. So when we talk about the business, we’re going to be talking about it excluding that provision. And hopefully, we’ve explained in our press release the fact that it's really just an accounting anomaly the way it’s accounted for, because we don't take credit for the natural hedge portion of that business which is parts we procure in euros and sell in dollars, which over the life of this thing are roughly balanced, okay, so.

Right. I guess I’m addressing the 17 -- I was excluding. So if you look at the first quarter excluding, you are at 17%, the guidance that you put out in March sort of reflects margin coming down the 13% to 14% for the rest of year. Is that fair or with the 17%, do you think it could be higher or just wondering sort of what you think?

I think, Joe, as we see things now, we would kind of continue to look at the guidance that we provided with the margin being in the, kind of 13% to 14%, 14.5% range.

Okay.

Again, it’s going to be move and that would be before of course, what Steve just said and as you understand the ‘14 impact of EDF. But generally to your question about overall activity, our revenue that we see on engines for the year is kind of roughly comparable with the year ago. Our parts and service, we really had a good parts and service year last year. And we maybe down a little bit overall for the year although we had a really good quarter, this quarter as we’ve discussed.

Okay.

And I think, the first quarter, look, I’m going to differ a little bit here. But I think frankly that with the strength of the first quarter and what we see in the backlog, we’ve got a pretty good chance of beating the margin from last year, excluding all but provisions stuff.

Okay. And just regarding…

I don’t think it will be huge, but I think we’ll beat the 14.2% we saw last year.

Okay. That’s helpful. In terms of the long-term outlook of that business, remind me when the EDF contracts sort of hits? In your investor presentation, you sort of provided, I remember a chart that sort of showed, how do you think the trajectory of that business could look over the next few years. And certainly it looks like you're anticipating in the horizon, I don’t know if it’s 2016 or if it is beyond 2016, some new business. I know you're in the commercial turbine and all these new businesses. Do you anticipate a ramp-up in 2016 and also how does that reflect in the margin profile with all this new business? Is there a little bit of pressure there or?

No. Look, the EDF contract, we’re working on it now. So we’re -- it’s [indiscernible] percentage completion basis. But we had to make the qualification engine before that’s complete. We’re testing that now. We’ve got other engines that are being assembled for that and being worked on parts of being procured. So, we are well into the EDF contract. That will happen over the next three years. Those engines will be delivered over the next three years, right. So those were baked into the guidance for this year and so forth. That’s it. Not an extremely rigid schedule but it’s pretty firm in terms of what happens. We’ve made certain commitments to EDF and when we’re going to deliver engines we have to meet those dates and so forth. There is always a chance that the customer will comeback and find tune it but it is pretty well established. The growth opportunity in FME has to do with the new engine developments that we are doing with opposed-piston engine what we called in New York, the OP 2.0. Now that is what really could open up substantial new commercial markets for FME and that will know, as I said in New York, we’ll know a lot more about it in the second half of the year. Because we’re literally building the first engine, which is an experimental engine as we speak. Will be testing that over the summer and early fall and be getting real performance data on it. So, hopefully, by the end of the year, we will have a really good sense of its competitive position and so forth. But even if it is successful, it probably -- it won't lead to any meaningful revenue in 2016 because of business cycle. We’ll have to get some in the field. We’ll have to do endurance testing, etc cetera. Hopefully, we will able to get some orders in 2016. But before we actually build and deliver those engines to any significant, right, we’re talking about years outside beyond that so.

Okay. Great. Thanks for taking my questions. I appreciate it.

Yes.

There are no further questions in the queue at this time. I turn the call back to the presenters.

Okay. Well, thank you for joining our call this morning. If you have additional questions, you can contact me at 704-731-1527. Have a good day.