Hello, and welcome to the Enpro Q1 2024 Earnings Conference Call. [Operator Instructions] A question and answer session will follow the formal presentation. [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, sir.

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 Bruderek, Executive Vice President and Chief Financial Officer; and Milt Childress, Executive Vice President. 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. 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. It is now my pleasure to turn the call over to Eric Vaillancourt, our President and Chief Executive Officer. Eric?

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 6-fold and has positive impacts on our business strategy, financial strength and culture have been remarkable. 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 worked 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?

Yes. Thanks, Eric. A few words, it's a pretty tough ask after nearly 19 years. 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 here as I state this. We have a start, and I'm talking about us collectively, had a start at understanding the purpose of life when we plant trees under who 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 or 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.

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. Sealing Technology started the year with strong operating performance. 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. In Sealing 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. Strong cost controls and favorable mix were also contributing factors to the excellent results. Our continued positive momentum and profitability in Sealing Technologies reflect the underlying strength of the segment. Our focus on applied engineered differentiation, compelling aftermarket characteristics, incremental investments in organic growth and continuous improvement opportunities have 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 Technologies segment, despite the revenue decline of 21%, we maintained a 20% adjusted segment EBITDA margin. We are continuing to make strategic growth investments and advance operational improvement initiatives to position AST for long-term growth. We are focused on executing our multiyear 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 forward. AST is a key component of our vision for the future of Enpro and we are confident this segment is well-positioned 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. We continue to offer critical solutions for our customers and deliver them in a 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 powered at Enpro. Joe?

Thank you, Eric, and good morning, everyone. I would like to thank Milt for his guidance and tremendous partnership in 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'm 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 semiconductor. First quarter adjusted EBITDA of $58.4 million decreased roughly 15% compared to the prior year period. Adjusted EBITDA margin of 22.7% decreased 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 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. Adjusted diluted earnings per share of $1.57 decreased almost 20% from last year, largely driven by the factors impacting adjusted EBITDA. Moving to a discussion of segment performance. Sealing Technologies sales of $171 million decreased 1%. The partial quarter's contribution from AMI, strategic pricing actions and strength in nuclear and aerospace offset softness in commercial vehicle, food and pharma 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…

Thanks, Joe. Overall, the balance inherent in Enpro's portfolio was evident again in 2024. Our discipline and rigor enabled us to perform well under diverse set of market conditions. Our best-in-class portfolio generates attractive margins and cash flow returns and our value-creating strategy remains unchanged. Thank you again for joining us today. We appreciate your interest in Enpro. We'll now welcome your questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from Jeff Hammond from KeyBanc Capital Markets.

Milt, thanks again for everything. We appreciate all your time that you've spent with us.

Thank you, Jeff. Appreciate it.

I really just want to dig in on semiconductor. I guess, it sounds like cleaning and leading-edge nodes seems to be getting better. Maybe talk through the parts where you're still seeing destocking and still seeing weakness. And then just if we snap the line as of today, are we feeling kind of more or less confident around kind of second half ramp in AST?

I'll jump in and start, Jeff. It's Eric. So first off, in all those segments, our backlogs grew. So we're feeling better about the second half as time goes on. Our cleaning and coating business certainly have 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 momentum there. 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.

Next question today is coming from Stephen Ferazani from Sidoti & Company.

I want to follow up that last question in terms of how the semiconductor recovery fits into your guidance. When the semi 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 coating, you get that recovery in the second half? And I guess that's specific to what you're hearing from your customers.

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 this segment. If you kind of take a step back, there are period, there's still a little slow order flow, and we're seeing periods of kind of 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 giving us some confidence that the back half will show some significant improvement.

If I could ask about Alluxa. 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 Alluxa?

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 Alluxa has now become a wholly owned subsidiary of Enpro.

No surprise there. That was all expected according to plan.

On the Sealing side, 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 a success in that? I would guess there was or was it just the other markets, aerospace and nuclear being very strong?

Yes. Steve, as we talked about coming out of the fourth quarter, right, the heavy-duty trucking and 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, we've really focused on positioning to the aftermarket. That's been successful, and that's what's 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 aftermarket mix in the 70% range versus commercial OEM and been quite successful there. So the STEMCO and overall Sealing team has done quite well, and you've seen the results and the improved margins.

One more in integration of AMI, how that's going, how you felt about that business so far and what you think to look ahead for it and how it fits within Sealing?

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.

Your next question is coming from Ian Zaffino from Oppenheimer.

This is Isaac Sellhausen on for Ian. I look the previous sentiment. Milt, congrats on a great career and proud retirement. Certainly will be missed on these earnings calls and welcome Joe as well.

Thank you.

The question is on Sealing. 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 long-term growth drivers there.

Sure. With the EDF project in France and Nuclear Fusion ITER?

Yes.

Okay. 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 or resurgence of nuclear 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. It'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 in the Western countries.

In regards to the 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.

We're certainly delighted with our positioning in certain areas in space, aerospace and sustainable power generation.

And then just higher level, I guess, on Sealing. I guess you've had some pricing that's helped the quarter a bit, but maybe if you could just speak to just volume versus price mix and sort of what's embedded in guidance here?

Yes. So Isaac, we've seen surgical pricing that's been quite successful so far this year. The environment is not conducive to the broad rate pricing that we've seen in the post-COVID market in the last few years, but the team continues to execute 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 position. Volume, we're definitely seeing headwinds in certain spaces. We called that out when you look at general industrial and food and pharma and volumes down in the mid-single-digit range there. But on the margin side and favorable mix side being offset by -- largely being offset by those 2 impacts.

I want to point out another thing. We had a very successful launch of a product called Auto-Torq in 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 in this year are artificially low. What you're seeing is the CapEx spending being put towards truck to be expensive requirements coming in 2027 model year. So the trailer will rebound as well next year and continue to grow into '26. So we're still excited about that business in the future.

Next question is a follow-up from Jeff Hammond from KeyBanc Capital Markets.

Just on, I guess, I'm just trying to get the shape of how -- maybe at the midpoint of the guidance or sort of baseline. It sounds like AST is up slightly sequentially, but just at the midpoint of the guidance, like how much of a step-up do you need into the second half to kind of hit that midpoint?

Yes. So Jeff, as we said, right, we're going to see a sequential improvement in the second quarter over the fourth quarter. We talked last quarter and then reiterated again today that we believe the first quarter is the bottom in AST and we should see sequential improvement into the second quarter. The second half includes about a low double-digit improvement in AST in the second half versus the first half. 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.

Okay. And then that second half, your ramp, is that more market recovery or is that some of the investments you're making kicking in, synergies from NxEdge and LeanTeq kind of coming together?

It's all of the above, Jeff, as you described.

Okay. And then just on Sealing, I guess, is kind of the best way to think about organic is kind of flat in the first half as got tough comps and negative and then the second half, you get some growth?

There is definitely a softer Q3, Q4 period of time, so we would probably included in our guidance range is reflective of what you just said, correct. And then, of course, the addition of AMI.

The good news is all the backlog in all 3 of those businesses grew as well in the first quarter. So we are seeing some momentum there as well.

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

Thank you for the time today. It was a pleasure. We look forward to the conversations later. Bye.

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.