Hello, and welcome to the EnPro Industries’ Third Quarter Earnings Review and Strategic Acquisition of NxEdge. [Operator Instructions] 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.

Thank you, Kevin. Good morning, and welcome to EnPro's third quarter earnings conference call and review of the strategic acquisition of NxEdge. I'll remind you that our call is being webcast at enproindustries.com, where you will find the presentation that accompanies the call. With me today is Eric Vaillancourt, our Interim President and CEO; and Milt Childress, Executive Vice President and CFO. Before we begin our discussion, a friendly reminder that we will be making statements on this call that are not historical facts and are considered forward-looking in nature. These statements involve a number of risks and uncertainties, including the impacts from the COVID-19 pandemic and related governmental responses and their impact on the general economy, as well as other risks and uncertainties that are described in our filings with the SEC, including our most recent Form 10-K and Form 10-Q. Also, during this 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. We do not undertake any obligation to update these forward-looking statements. Also note that during this call, we will be providing full year guidance which excludes changes in the number of shares outstanding, impacts from future acquisitions, dispositions and related transaction costs; the impact of any pending or potential labor disputes; restructuring costs, and costs subsequent to the end of the third quarter, the impact of the foreign exchange rate changes subsequent to the end of the third quarter, impacts from further spread of COVID-19 and environmental and litigation charges. And now I'll turn the call over to Eric. Eric?

Thanks, James. And good morning, everyone. Thank you for joining us today. With the COVID-19 pandemic remaining top of mind for our colleagues and stakeholders around the world, we hope that you and your families remain safe and healthy. We certainly accomplished a lot this quarter. Our teams remain focused on our commercial and strategic objectives and with the volatility of supply chains and COVID-19, I would like to take the opportunity to thank each of you for your hard work every day to make EnPro an incredibly special place to work. These are exciting times for our company. In addition to our third quarter results, we are excited to announce today that we reached an agreement to acquire NxEdge, which will significantly expand our solutions offerings in the semiconductor industry. We will cover that news in a few minutes. But first I'd like to touch briefly on our third quarter highlights. We delivered another strong quarter in Q3 with sales increasing approximately 16% organically and adjusted EBITDA margin expanding 250 basis points. As Milt will describe in greater detail shortly, performance in the Sealing Technologies and Advanced Surface Technologies segments, were the primary drivers of these results. Heightened collaboration among our supply chain, manufacturing and commercial teams over the past year has been foundational to our strong year-over-year earnings growth. We have held supply chain disruptions to a minimum and successfully managed supply shortages, material cost increases and pricing initiatives. The global supply chain pressures will likely continue for some time and we will remain vigilant in working with our suppliers in delivering on customer needs. Results for the quarter and year-to-date also reflect the positive effects of our portfolio reshaping and growth initiatives. During the quarter, we announced additional moves that enhanced our overall portfolio of businesses. On September 3, we announced the divestiture of our Polymer Components business, continuing our efforts to optimize Sealing Technologies segment. Following quarter close we announced the agreement to sell Compressor Products International business, marking another meaningful step in our company's evolution, which will significantly reduce our exposure to the oil and gas market. And today the announcement of the agreement to acquire NxEdge is yet another significant step in our transformational journey. I will hand the call over to Milt for other highlights on the quarter, following which we will come back to today's announced acquisition.

Thanks, Eric. As Eric mentioned, we had another strong quarter, positive momentum across most major end markets, as well as the addition of Alluxa contributed to top-line results, partially offset by the reduction in sales due to last year’s divestitures and weakness in power generation, oil and gas, and automotive markets. As reported, sales of $283.1 million in the third quarter increased 5.5% year-over-year. As Eric noted, organic sales for the quarter increased about 16% compared to the third quarter of 2020. Gross profit margin of 38.7% increased 350 basis points versus the prior year period. The increase was driven primarily by strong organic sales growth, increased pricing, benefited the divesting lower margin businesses and the addition of Alluxa partially offset by increased raw material costs. Adjusted EBITDA of $51.5 million increased 22.3% over the prior year period as result of operating leverage on organic sales growth. The benefit of reshaping actions completed in 2020, including the addition of Alluxa and pricing initiatives, partially offset by increased raw material costs. Adjusted EBITDA margin of 18.2% expanded approximately 250 basis points compared to the third quarter of 2020. Corporate expenses of $11.6 million in the third quarter were essentially flat from a year ago. Adjusted diluted earnings per share of a $1.40 increased 39% compared to the prior year period. As noted during prior calls, during the fourth quarter of 2020, we changed our adjusted EPS from the previous presentation of this non-GAAP measure to one that excludes after tax, acquisition related, intangible amortization. Amortization of acquisition related intangible assets in the third quarter was $11.2 million, compared to $9 million in the prior year, reflecting the addition of Alluxa. As reminder, our estimated normalized tax rate used in determining adjusted EPS is 30%. Moving to the discussion of segment performance,…

Thanks Milt. As you have seen, this morning, we announced that EnPro has entered into a definitive agreement to acquire NxEdge from Trive Capital. NxEdge is an advanced manufacturing, cleaning, coating and refurbishment business focused on the semiconductor value chain. This is an exciting acquisition of a highly complementary business that we believe will be transformative to our AST segment and deliver a compelling, strategic and financial benefits for EnPro and the customers we serve. It also marks a significant next step in our ongoing portfolio reshaping strategy. Before getting into more specifics on NxEdge, I'd like to remind everyone of our strategy as outlined during our May Investor Day and in subsequent communications. Since 2018, we have been executing on a transformative strategy to reshape our portfolio. These actions have strengthened profitability and enhanced growth through a focus on high margin technology-related businesses, which possess stronger and more consistent cashflow operating in faster growth markets. We are executing the strategy through the divestitures of non-core businesses and product lines, as well as strategic acquisitions of high growth, high margin businesses that meet our M&A criteria. You have seen evidence of this strategy in the acquisitions of Aseptic, LeanTeq and Alluxa, and through a number of divestitures completed over the past three years. This morning's announcement agreement with NxEdge and the recently announced sale of our Compressor Products International business represented another large step forward in our strategy. Let's turn Slide 14 for a closer look at NxEdge. Based in Boise, Idaho, NxEdge serves the semiconductor supply chain from six main facilities located in Idaho in California. The company is expected to generate sales and EBITDA in 2021 of approximately $190 million and $70 million respectively. We've long admired NxEdge and its management team are very familiar with their business…

Great. Thanks, Eric. Under the terms of the agreement announced today, EnPro will acquire NxEdge from Trive Capital for $850 million in cash, subject to limited closing adjustments, including working capital. We expect to time the purchase with a combination of cash, borrowings from our revolving credit facility and additional term loan debt provided by our bank group. The transaction is expected to close by the end of the year following regulatory approvals. As Eric mentioned, NxEdge is expected to generate sales and adjusted EBITDA in 2021 of approximately $190 million and $70 million, respectively. Based on global semiconductor benchmarks, the announced expansion of wafer production in the U.S. and the capabilities of NxEdge combined with those of our AST business, we anticipate NxEdge’s annual revenue growth over the next five years, on average, to be in the high-single-digit, low-double-digit range. At current interest rates, we expect NxEdge to contribute approximately $1.70 and adjusted diluted earnings per share in 2022, which represents approximately 30% above the midpoint of our 2021 guidance range. As Eric noted, NxEdge will continue to be led by current CEO, Jackson Chao and will become part of our Advanced Surface Technologies segment. The addition of NxEdge continues the migration of EnPro’s in-market exposure toward faster growing markets, including semiconductor. As you can see on Slide 25, on a proforma basis, including the impact of the announced NxEdge acquisition and the CPI divestiture, semi sales would represent about a third of our total sales with noticeable drops since 2018 in heavy-duty trucking and oil & gas. Slide 26 provides multi-year trends for sales, adjusted EBITDA and adjusted EBITDA margin, which reflect the results of our performance and portfolio reshaping. 2019 and 2020 are as reported. 2021 is based on the midpoint of current guidance. And 2021, proforma shows the midpoint of guidance adjusted to reflect NxEdge, CPI and Polymer Components as if those transactions occurred at the beginning of the year. Of note, 2021 proforma adjusted EBITDA margins are 700 basis points above 2019 margins. And with 240 basis points of that improvement attributable to the impact of this year’s completed and announced transactions. Looking at the balance sheet, upon completion of the NxEdge acquisition, we anticipate net leverage of approximately 3.7 times adjusted EBITDA. Proceeds from the sale of CPI will lower our leverage ratio to about 3.3 times. Over time, through operating cashflow and possible further portfolio optimization, we expect to expect to bring our leverage ratio back to a target of around two times. Now, I’ll pass the call back to Eric for closing comments.

Thanks Milt. Before we open it up for questions, I'd like to thank the entire EnPro team for delivering strong third quarter results, which yet again, demonstrate the benefits of our clear and consistent strategy, the sustained benefits of our ongoing portfolio, reshaping actions and our intention to continue investing in growth opportunities. We expect this momentum to continue as we focus on driving commercial and operational excellence throughout the company. Our team also helped us put us into a position [indiscernible] the exciting transaction with NxEdge for focused on completing the transaction before the end of the year and beginning the integration planning process, so we can hit the ground running upon close. We're very excited about welcome everyone at NxEdge to the EnPro team and look forward to realizing the value of this combination. This is the right deal, at the right time, with the right company, with the right leadership for EnPro in a growing market that expects to exceed a trillion dollars by 2023. We're really excited about the combination. With that we’ll open it up to the operator. Thank you.

Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] One moment please while we poll for questions. Our first question today is coming from Jeff Hammond from KeyBank Capital Markets. Your line is now live.

Hi, good morning, guys.

Good morning, Jeff.

Good morning, Jeff.

Congrats on the deal, and certainly managing a challenging supply chain environment. Just want to – great color on this deal. Just some questions around it. One what's the interest cost you're assuming around the deal? Kind of give us the – I think he gave us forward growth rates, but what's the historical long-term growth rate for NxEdge. And then just trying to understand a little bit better the fit between LeanTeq and NxEdge?

Okay. Hey, Jeff. I'll take the first part and then I'll pass it to Eric to comment more on the fit. Our financing, as I noted on the call in our prepared remarks, we're financing partially with cash, partially withdrawal on our revolver, and then partially through some new bank debt, all raised within our bank group. And it will be variable, right debt. The same pricing grid, nothing changes on our pricing grid because of the leverage the rates will go up a little bit, but basically LIBOR plus 175 to give you an idea of what our cost will be on the incremental debt. And in terms of growth rate, yes, I mean, we've – I mentioned that we expect on average over the next five years for NxEdge to grow. And you can interpret that as both sales and EBITDA, but to grow at a high-single digit, low-double digit rates. Some of this is going to depend on how quickly things develop in the U.S. with the development of the supply chain to support new fabrication of chips here in the U.S. So, there's some upside to that, depending on how things develop. But that's how we're planning our business and planning around this acquisition.

Hey, Jeff, it's Eric. Yes, in regards to LeanTeq, it does a few very important things for us. First off, it expands our customer base. Secondly, geographic footprint. NxEdge very much needs to be in Asia. And it helps us very much domestically with all the investment going on in the U.S. So, it helps us to some of those two things. In addition, the technology is similar, it’s very complimentary, and their processes are slightly different than ours, and now open up different opportunities for us. So, it expands the amount of products we can serve inside the chamber, it expands our reoccurring revenue there, increases our after-marketing sales exposure, widens our customer base, widens a geographic footprint. All in all, it's just a home run Jeff.

That's a great color, appreciate that. Just going back to the base, obviously a lot of discussion around supply chain, just wondering where you're seeing the biggest pinch points? Which businesses seem most impacted? And if you've seen kind of any sales deferrals as a result of some of the noise here?

Yes, Jeff, you are referring to you referring to Engineered Materials, or just more broadly?

Just broadly, yes, unless that's where it's mostly focused.

Yes, let’s start there with Engineering Materials that's the segment where we're seeing the most headwinds from the supply chain, from shortages, from customer slowdown due to supply chain shortages. And it's particularly pronounced in our bearings business as you know, automotive accounts for a significant portion of the revenue in that business. And automotive production has been down because of the chip shortage. And so, we're responding to that. So, that was a significant factor for us in the third quarter in that segment. Oil & gas through much of the segment too was not really vibrant. Obviously, it's making a little bit of a push now as oil and gas prices have been rising. But that was relatively flat to down a bit year-over-year. So, all-in-all, we saw the most pressure in the quarter in Engineered Materials.

Great, excellent

[Indiscernible] in the heavy-duty trucking business as well.

So, it sounds like it's primarily auto truck markets that seem to be having these production cutbacks versus you being able to get supply or materially added costs around your supply chain.

Yes. It's fighting fires every day. Eric can speak more to that, but we've been doing it successfully. Thanks to our team.

It is fighting fires every day. We've been doing it through a combination of surcharges, and pricing increases and being very agile. We meet weekly and we focus on pricing weekly. It is a challenge in this environment. I keep describing it as whack-a-mole, because every day there is a new issue, but our team has been very good this year at capturing value throughout the issues. And so, we've been able to fight most of it off.

Okay, great. I'll get back in queue. Thanks.

Thank you. Next question today is coming from Ian Zaffino from Oppenheimer. Your line is now live.

Hi. Thank you very much. How are you guys?

Good morning.

Good morning.

Great. A couple of questions here. Just first one building on the last question, can you actually give us like a price cost gap, what you faced in the quarter and maybe what we should expect on kind of a run rate basis?

Yes, overall, if you look at the total company, we were above water, our head was above water on price and cost. It did vary that business by segment. And as I mentioned earlier, we've had the most pressure in the Engineered Materials segment. And so, we were a little bit underwater there. But overall, on a net basis, we were up a few million dollars on the trade between price and material costs. We were a little bit underwater as I mentioned in Engineering Materials. As Eric mentioned we've had some pressure in our heavy-duty truck business. But overall, in the Sealing segment, we did fine, we did well actually, given the performance at Garlock and Technetics Sealing.

Biggest differences, the amount of raw material and engineer materials, businesses versus Sealing Technologies segment. So, if you look the percentage of material cost has much bigger impact.

Okay. And that's a safe assumption to make going forward as well, that's you'll be above water.

Well, supply chain has gotten more, tricky. And I think you've probably read that and you've heard that from other companies. And so, we're not declaring victory yet that we have totally wrestled to the ground. But what we are confident in is that our teams, our supply chain teams, our commercial teams are well coordinated and we're doing the good work to stay ahead of the curve with timely price increases where appropriate, surcharges as Eric mentioned and reacting, let’s see what happens.

Perfect. And NxEdge, could you help us understand how you found that deal, what was it auction, was it something that you have a close relationship with the owner? How did that go about?

I would say it's a close relationship with the owner. We've had a relationship with Jackson Chao going back to 2014. This is a company we long admired. We often talk about being a disciplined investor. When you look at the acquisitions we've done recently, The Aseptic Group, we had over a five-year relationship with, Rubber Fab we had six- to seven-year relationship with, and going back with Jackson Chao now seven years. So, this is a company we've been following for a long time and admiring and trying to find the right deal at the right time at the right place. And with the semiconductor industry moving back to the U.S. this is perfect time. And it's a great company and a great leadership team we're really happy to have them as part of the EnPro family.

Okay. And then just one last question, if I could sneak it in, these numbers that you gave us for next year is that assuming any cost outs, or is there none, or how do we think about that as well?

No, this isn't a deal where you will find. We're not acquiring it and baking it at any cost synergies. So, it's mostly going to be the commercial benefits that Eric has just talked to. And this is pretty much our expectations for what they will contribute on a standalone basis to us.

Okay, perfect. Thank you very much.

Thank you. [Operator Instructions] Our next question today is coming from Steve Ferazani from Sidoti. Your line is now live.

Hi, good morning, everyone.

Hi Steve.

I just wanted to follow-up some of the questions are surrounding supply chain and just as you noted, going through earnings season, how many companies that weren't seeing slowdowns previously now are? When you are thinking about guidance and probably what you've already seen, particularly on the Engineered Materials side. Have you seen any meaningful slowdown beyond automotive that would make you be a little more cautious?

It's primarily automotive. When you look at Engineering Materials, Erik?

No, all of our businesses have had backlogs growing and that continues. So, if you look at the fourth quarter, our backlogs continue to grow, simultaneous slowing. There is we could be growing faster I would say that. But no, it hasn't harmed us other than automotive.

When I think about, yes, the significant transformation efforts this quarter, obviously there was a lot of caution going back a quarter, given the sudden leadership change, if we can sort of walk us through, and you had said this on the last quarter, that it wouldn't slow things down, but obviously there were some concerns. Can you just walk us through just the transformation efforts, even as you went through the weak leadership change?

I can speak to it first and then I'll let Milt jump in. Yes, we operate with EnPro and EnPro EEC Council, so EnPro Leadership Executive Council and have for that way, operating that way for now, going back at least 10 years. And so, the leadership team is where strategy is created and then executed in the divisions. So, this is just an ongoing part of our strategy that's been evolving over a number of years through three CEO successions, and hopefully I'll be the next. So, it is just a continuation, this is plug and play this isn't start and stop. And so, it's very easy to continue. And as you can tell, these things were underway and the NxEdge was actually initiated a long time ago.

Another thing also I would add Steve is NxEdge is the result of our executing our strategy as Eric has described.

Any update on the timing of the CEO announcement?

Let me take that one. Yes, let me get that. Eric is our CEO. We have a terrific leadership team as he talked about and with really strong business leaders and a strategy that we're executing to. And so, the Board is proceeding as it plans with its fiduciary obligation and taking the final decision seriously. But I think I can speak for the Board in saying that they have total confidence in our existing team.

And then just in terms of segment reporting with CPI soon to be exited, do you expect to report GGB standalone as the third segment?

Yes, we will still have Engineered Materials which will be GGB primarily. Yes.

And you sort of alluded to ongoing portfolio optimization efforts, any thoughts on the long-term of GGB?

Well, I just mentioned possible, further portfolio optimization it could come from product lines and other moves. So really there are no decisions that have been made there. Just noting that it is possible in the future that some of that continues.

Thanks so much, everyone.

Thank you. Our next question today is coming from Justin Bergner from Gabelli, your line is now live.

Good morning, Eric. Good morning, Milt.

Hey Justin.

Hey Justin.

Congratulations on the announced deal.

Thank you.

Thank you.

A handful of questions. I'll start with NxEdge. Just sort of three quick questions there. Are there any sales outside of the semiconductor vertical, would be the first? The second would be why does this transaction not have a roll over equity component? And then I guess the third would be sort of, what do you see as the major risk? I realize there are a lot of positives with the deal, but it's always good for investors and analysts to know about the risks that you considered.

The answer to the first question is no, the revenue base of the company is all focused on the semiconductor industry. So that was question number one, I believe.

The answer to question number two is Jackson Chao has decided to take $10 million from his proceeds and invest in EnPro stock. So EnPro, Jackson is a believer in our strategy as well, and wants to share in the potential that we realize for the next few years. So, Jackson will be one of the EnPro’s shareholders, and we're excited to have him as part of the family. And I don't remember your third question. I'm sorry.

The third question was just about general risks that you perceive to this deal. I mean, I understand there are a lot of positives and you've highlighted them, but what were the sort of risks that you consider and will stay abreast of as you move forward and close and integrate?

Well, there are just general risks that you have with this. There is some customer concentration, that's the nature of competing in the semiconductor industry. We have capacity expansion that's planned for the United States to support what's happening here. And so, we know we're going to have some investments to make. I mean, that's a good problem to have. I guess you could call it, it's a risk in a sense, because, it's unknown exactly how it's going to play out, but we're already working on that. We're working on that before the acquisition of NxEdge. And the addition of NxEdge actually makes that probably less risky than if we were going at without NxEdge, just because of their strength and capability in the U.S. So, I'm not sure I would – there are any other risks that I haven’t highlighted Eric?

Just timing. I think the biggest risk is the Intel Samsung, their investment gets delayed, or it takes longer than we think, but that would be in out years. So that would be years, 24, 25, something like that. But I actually don't see risk in the long-term semiconductor strategy in the U.S.

Okay, great. That's very helpful. It's just always good to know the other side of the equation. And then in regards to the results in guidance. So, I mean, would the guidance essentially have kept the high end on the adjusted EBITDA not for the Polymer Components divestiture, it seems like the answer is yes, but just to confirm that? And then the second thing is if the sales guide is increasing and it looks like it's increasing about $10 million, the midpoint and absorbing $10 million plus of the divested sales, why isn't the EBITDA guide going higher? Is that because there are some supply chain headwinds offsetting the better sales pace, or what is constraining the adjusted EBITDA?

Yes, it's a little bit more granular to answer the question. We have to look business by business, but I think some of it is what you described, some of it is we're anticipating higher SG&A costs as we’re returning a little bit more to normal now. That's all in the advance of supporting additional future growth, obviously because we spend SG&A and we travel and we meet with customers for a reason. So, some of that is baked into our outlook for the fourth quarter and therefore our – we pass guidance for the year.

Okay, great. Then it would have clipped at high end of the EBITDA range would have stayed the same without the polymer?

Correct. Last time we revised it you are right. It remains unchanged at the high end, except for the divestiture of Polymer Components, which I think you and our investors understand.

Okay. And just lastly, on the higher sales guide, but sort of unchanged EBITDA guide at the high end, you mentioned some higher SG&A. Is there also an element that part of the higher sales guide is just sort of passing through higher input costs and it's not really volume-driven.

Correct.

Okay.

That, correct. And some of the surcharges that Eric talked about as well.

Okay, great. Thanks for taking all the questions.

Thank you.

Thank you.

Thank you. We reached the end of our question-and-answer session, I'd like to turn the floor back over to James for any further or closing comments.

Thank you very much, everyone that concludes our conference call this morning. I’ll talk soon.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.