Enpro Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• EnPro Industries, Inc. performed well in 2024 despite challenges in semiconductor capital equipment demand and commercial vehicle OEM sales. Sealing Technologies' excellent performance offset AST's soft demand, leading to improved bottom-line results. Adjusted EBITDA for 2024 was approximately $255 million, up 7% year over year, and the net leverage ratio was 1.6 times.
• Launched EnPro 3.0, the next phase of value creation. Phases: Phase 1 resolved legacy liabilities; Phase 2 was portfolio transformation (2019-2024); Phase 3 (EnPro 3.0) targets higher revenue growth and best-in-class profitability.
• Q4 2024 results: Sales of $258.4 million increased 3.7%; adjusted EBITDA of $58.2 million increased 24%; adjusted diluted earnings per share of $1.57 increased 32%.
• Safety: 2024 safety results better than industry averages; 3 locations received ISO 45001 certifications.

Segment Performance

• Sealing Technologies: In the fourth quarter, sales were $163 million, a 11% increase from the prior year. Organic sales rose 6.7%. Adjusted segment EBITDA increased nearly 32% year over year, with the adjusted segment EBITDA margin expanding almost 500 basis points to 31%. For the full year, the adjusted segment EBITDA margin was over 32%. Revenue contribution in Q4: Sealing Technologies sales of $163M made up approximately 63.1% of the total Q4 sales of $258.4 million.
• Advanced Surface Technologies (AST): Fourth quarter sales were $95.6 million, a 6.4% decrease year over year. Adjusted segment EBITDA decreased approximately 7% versus the prior year period. The adjusted segment EBITDA margin was 22.1%, which improved sequentially by 130 basis points. Revenue contribution in Q4: AST sales of $95.6M made up approximately 36.9% of the total Q4 sales of $258.4 million.

Guidance

• 2025 total EnPro Industries, Inc. sales growth expected in the low to mid-single-digit range. Adjusted EBITDA expected to be in the range of $262 million to $277 million, and adjusted diluted EPS to range from $7.00 to $7.70 per share.
• Sealing Technologies: Expect low to mid-single-digit revenue growth in 2025, with strength in aerospace, space, nuclear; commercial vehicle flat to slightly up.
• AST: Expect mid to high single-digit sales growth in 2025, with the second half stronger; adjusted segment EBITDA margins to remain above 20% for the year.

Risks

• Persistent weakness in semiconductor capital equipment demand.
• Sharp decline in commercial vehicle OEM sales.
• Tariffs and trade-related uncertainties affecting sourcing and pricing.

Question and Answer

• Q: What is the outlook for semiconductor growth in AST? A: Mostly outgrowth and leading-edge applications; the market is expected to be choppy in 2025, with investments in leading-edge technologies to drive growth.
• Q: How did AST achieve sequential margin increase? A: Favorable mix, volume, and qualification work contributed to the sequential margin increase; the company is investing ahead of demand, with ramping expected in 2026.
• Q: How are tariffs being handled in terms of sourcing and pricing? A: Most sourcing is region-based; price plans and surcharges are in place to handle tariffs, with minimal impact expected.
• Q: What is the path to AST achieving 30% adjusted segment EBITDA margins? A: Growth from market recovery and strategic positioning, along with continuous improvement and operational programs over multi-year period contribute to reaching 30% margins.
• Q: What is the outlook for semiconductor customer growth beyond 2025? **A: 2025 is expected to be choppy, and 2026 visibility is limited due to ongoing uncertainty.