EnPro Industries Investor Presentation. Engineered Products for a Demanding and Safer World

Transcription

1 EnPro Industries Investor Presentation Engineered Products for a Demanding and Safer World Q

2 Forward-Looking Statements Statements in this presentation that express a belief, expectation or intention, as well as those that are not historical fact, are forward-looking statements under the Private Securities Litigation Reform Act of They 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 include, but are not limited to: general economic conditions in the markets served by our businesses, some of which are cyclical and experience periodic downturns; prices and availability of raw materials; fluctuations in relevant foreign currency exchange rates; unanticipated delays or problems in introducing new products; the incurrence of contractual penalties for the late delivery of long lead-time products; announcements by competitors of new products, services or technological innovations; changes in our pricing policies or the pricing policies of our competitors; and the amount of any payments required to satisfy contingent liabilities related to discontinued operations of our predecessors, including liabilities for certain products, environmental matters, employee benefit obligations and other matters. Our filings with the Securities and Exchange Commission, including the Form 10-K for the year ended December 31, 2017, describe these and other risks and uncertainties in more detail. We do not undertake to update any forward-looking statement made during the course of this presentation to reflect any change in management's expectations or any change in the assumptions or circumstances on which such statements are based. We own a number of direct and indirect subsidiaries and, from time to time, we may refer collectively to EnPro and one or more of our subsidiaries as we or to the businesses, assets, debts or affairs of EnPro or a subsidiary as ours. These and similar references are for convenience only and should not be construed to change the fact that EnPro and each subsidiary is an independent entity with separate management, operations, obligations and affairs. This presentation also contains certain non-gaap financial measures as defined by the Securities and Exchange Commission. A reconciliation of these measures to the most directly comparable GAAP equivalents is included as an appendix to this presentation. We will also be referencing certain pro forma unaudited condensed consolidated financials. Please refer to our earnings releases for important information regarding how pro forma and other financial information is derived, as well as related risks and uncertainties. 2

3 Who is EnPro? Leading provider of highly-engineered solutions for mission critical applications 3

4 Attractive portfolio of businesses Company Snapshot Company Overview Founded in 2002 (spin-off from Goodrich Corporation) Portfolio of niche businesses Several brands over 100 years old Corporate HQ in Charlotte, NC 6,000+ employees worldwide Trading Statistics (1) NYSE Ticker: NPO Market Cap: ~$1.5 billion Diluted Shares Outstanding: ~20.9 million Dividend: $0.96/share Dividend Yield: ~1.3% LTM Q Pro Forma (2) Sales: $1,513 million LTM Q Pro Forma (2) Adjusted EBITDA: $212 million Sales Mix (3) Sales by Geography Sales by Market Sales by Channel Europe 21% ROW 12% Semiconductor Automotive Oil & Gas Aerospace Other 7% 7% 8% 4% 4% HD/MD Truck 26% 48% Aftermarket 67% North America Chemical & Material Processing 9% Navy & Marine 10% 11% 15% General Industrial Power Generation OEM 52% (1) Trading metrics as of 11/9/18. (2) See appendix for pro forma financial reconciliations. (3) Based on pro forma sales. 4

5 EnPro s three segments Sealing Products Engineered Products Power Systems Representative Markets: Representative Markets: Representative Markets: Aerospace Food & Pharma Processing Semiconductor Automotive ConAg General Industrial Navy & Marine Oil & Gas Heavy-Duty Trucking Metals & Mining Oil & Gas Chemical Processing Natural Gas Transmission Power Generation Segment LTM Q3 18 Pro Forma (1) : Sales: $957M Adjusted EBITDA Margin: 17% Segment LTM Q3 18 Pro Forma (1) : Sales: $324M Adjusted EBITDA Margin: 17% Segment LTM Q3 18 Pro Forma (1) : Sales: $236M Adjusted EBITDA Margin: 12% (1) See appendix for pro forma financial reconciliations. 5

6 EnPro s investment merits 1 Compelling business characteristics support market leading positions 2 Investments in innovation and new product development drive organic growth 3 Resources focused on markets with above average long-term growth 4 EnPro Operating System drives margin expansion while embracing the nuances of the niche markets we serve 5 Balanced capital allocation maximizes shareholder value 6

7 EnPro s businesses share common characteristics Business Characteristics Benefits Leading brands (many 100+ years old) High switching costs Highly-engineered Competitive barriers Mission critical Ability to maintain & selectively raise prices Low-cost relative to applications served Premium pricing Highly diversified customer base Stable cash flows Balanced OEM and aftermarket presence Healthy margins Products specified / certified for applications Muted cyclicality EnPro s characteristics produce an attractive financial profile 7

8 Investments in innovation and new product development drive organic growth Wide Portfolio of Innovation Opportunities in Highly Differentiated Products GYLON EPIX Hydrodynamic Seals Zip-Torq Axle Spindle Nuts Trident OP Evolution Gasket Proflo EOS Trifecta Common Rail Fuel Injection System Diverse innovation portfolio creates large growth opportunities, while speeding time to market and minimizing risk Note: The above is a selection of representative examples from EnPro s innovation portfolio. 8

9 Resources focused on markets with above average long-term growth Semiconductor Hygienic Aerospace EnPro s Key Growth Markets Power Generation Investments in R&D, capital, and acquisitions will be disproportionately focused on markets with favorable characteristics and long-term trends 9

10 EnPro Operating System drives margin expansion while embracing the nuances of the niche markets we serve Organizational Construct Corporate Business Unit Management EnPro Strategy Capital Allocation Talent Development Operational Excellence Commercial Excellence Shared: Best practices facilitated by Corporate; Business Units are accountable for results. The EnPro Operating System combines organization-wide capabilities that improve efficiency, reduce cost, and ensure quality with Business Unit strategies that address the nuances of the niche markets we serve Innovation Business Unit Strategy 10

11 Balanced capital allocation 2017 Capital Allocation Summary Capital Allocation Strategy Key Objectives Long-Term R&D Growth Capex $17M Share Repurchases $12M Strategic Acquisitions $45M Invest in new product development, new applications, and new markets Pursue bolt-on and adjacency acquisitions to support growth strategies Shareholder Dividends $19M Sustaining & Maintenance Capex $28M Fund disciplined growth and maintenance capital expenditures Return capital to shareholder base Pro forma net leverage was 1.7x at the end of Q3 EnPro s capital allocation strategy is to return capital to shareholders when compelling investment opportunities are not available Note: See appendix for pro forma net leverage calculation. 11

12 2018 Guidance Guidance Commentary At the end of Q3, EnPro maintained its expectation for full-year 2018 sales growth and tightened its expectation for full-year 2018 adjusted EBITDA Expect full-year consolidated sales to be up between 8% and 9% over pro forma 2017 sales and full-year adjusted EBITDA to be between $217 and $220 million for the year New range reflects confidence in ability to execute on Power Systems backlog and current visibility of order trends in our other businesses $ in millions 2018 Guidance (1) Low High Sales Growth 8.0% 9.0% Adjusted EBITDA $217M $220M Despite some challenges in Heavy Duty Trucking during the first-half of the year, we are confident that we will achieve strong year-over-year performance in the remainder of the year (1) Ranges include the impact from the previously announced acquisitions and excludes any impact of further M&A activity and acquisition-related costs, changes in foreign exchange rates from the end of the third quarter (September 30, 2018), and any litigation or environmental charges. Note: 2018 pre-tax income will include a $12.8 million non-operating, non-cash charge resulting from the third quarter completion of an annuitization of a portion of the Company s pension obligations. 12

13 Appendix 13

14 Sealing Products Snapshot Representative Products Sanitary Hoses Hydrodynamic Seals Bearing Isolators Metal Seals Wheel End Products Sales Mix (1) Sales by Geography Sales by Market Sales by Channel Europe 13% ROW 12% 75% North America Aerospace Other Chemical & Material Processing 6% 5% 6% Powergen 8% Oil & Gas 9% Semicon 11% 15% HD/MD Truck 40% General Industrial OEM 49% 51% Aftermarket (1) Based on pro forma segment sales. 14

15 Engineered Products Snapshot Representative Products Bushings Metal Bearings Plastic & Polymer Bearings Compressor Valve Components Lubrication Systems Sales Mix (1) Sales by Geography Sales by Market Sales by Channel ROW 16% Europe Aerospace Other Powergen 7% 3% 2% Oil & Gas 8% Automotive 31% Aftermarket 31% North America 33% 51% Chemical & Material Processing 22% 27% General Industrial OEM 69% (1) Based on pro forma segment sales. 15

16 Power Systems Snapshot Representative Products Colt-Pielstick Engine Model PA6B Opposed Piston Engine Model 38 Nextgen Opposed Piston Engine Sales Mix (1) Sales by Geography Sales by Market Sales by Channel ROW Oil & Gas Europe 13% 7% Powergen 32% 2% OEM 41% 65% 59% 80% North America Navy & Marine Aftermarket (1) Based on pro forma segment sales. 16

17 Sealing Products Illustrative View: Success Creating New Growth Nodes We have expanded our growth opportunities through bolt-on and adjacency acquisitions Growth Node Creation Via Inorganic Activity Over Time Growth Nodes (Blue) Industrial Sealing Pikotek PSI Pipeline Sealing Rubber Fab Hygienic Components HPS Acquisitions High-Performance Sealing Qualiseal Aerospace Components Tara Technologies Semiconductor Wheel-End Sealing Kaiser GAFF JV Air Springs Suspensions Crewson, Duraline, Rome, Motor Wheel, and CVC ATDynamics Brake Products Mileage & Tire Solutions 17

18 Reconciliation of Net Sales to Pro Forma Net Sales $ in millions Sealing Products LTM Q3 18 Net Sales Adjustments: Sales of Unconsolidated Entities Intercompany Sales (42.5) (29.6) - Pro Forma Net Sales Engineered Products LTM Q3 18 Net Sales Adjustments: Sales of Unconsolidated Entities Intercompany Sales (1.5) (1.1) - Pro Forma Net Sales Power Systems LTM Q3 18 Net Sales Adjustments: Sales of Unconsolidated Entities Intercompany Sales (1.4) (2.0) - Pro Forma Net Sales EnPro LTM Q3 18 Net Sales 1, , ,513.1 Adjustments: Sales of Unconsolidated Entities Intercompany Sales (45.8) (33.0) - Pro Forma Net Sales 1, , ,513.1 Note: Information from our third quarter 2018 earnings release dated October 31, 2018 and available at our website. 18

19 Calculation of Last Twelve Months (LTM) Pro Forma Segment Sales Sealing Products Engineered Products ($ in millions) Consolidated Net Sales Sales of Unconsolidated Entities Intercompany Sales Pro Forma Net Sales ($ in millions) Consolidated Net Sales Sales of Unconsolidated Entities Intercompany Sales Pro Forma Net Sales Plus: Plus: Nine Months Ended Sept. 30, 2018 (1) Nine Months Ended Sept. 30, 2018 (1) Year Ended December 31, (29.6) Year Ended December 31, (1.1) Less: Less: Nine Months Ended Sept. 30, 2017 (1) (29.6) Nine Months Ended Sept. 30, 2017 (1) (1.1) LTM Ended Sept. 30, LTM Ended Sept. 30, Power Systems EnPro ($ in millions) Consolidated Net Sales Sales of Unconsolidated Entities Intercompany Sales Pro Forma Net Sales ($ in millions) Consolidated Net Sales Sales of Unconsolidated Entities Intercompany Sales Pro Forma Net Sales Plus: Plus: Nine Months Ended Sept. 30, 2018 (1) Nine Months Ended Sept. 30, 2018 (1) 1, ,150.6 Year Ended December 31, (2.0) Year Ended December 31, , (33.0) 1,402.5 Less: Less: Nine Months Ended Sept. 30, 2017 (1) (2.0) Nine Months Ended Sept. 30, 2017 (1) (33.1) 1,039.9 LTM Ended Sept. 30, LTM Ended Sept. 30, , ,513.1 Note: Information from our third quarter 2018 earnings release dated October 31, 2018 and available at our website. 19

20 Calculation of Last Twelve Months (LTM) Pro Forma Adjusted EBITDA ($ in millions) Consolidated Net Income (Loss) Consolidated Adjusted EBITDA Pro Forma Adjusted EBITDA Plus: Nine Months Ended Sept. 30, Year Ended December 31, Less: Nine Months Ended Sept. 30, LTM Ended Sept. 30, Note: See accompanying reconciliations. 20

21 Consolidated Adjusted EBITDA Reconciliation ($ in millions) 2017 Nine Months Ended Sept. 30, 2017 Nine Months Ended Sept. 30, 2018 Consolidated Net Income (Loss) Plus: Interest Expense, net Income Tax Expense (Benefit) Depreciation and Amortization Restructuring Costs Environmental Reserve Adjustment AT Dynamics Impairment Charge Fair Value Adjustment to Acquisition Date Inventory Gain on Reconsolidation of GST and OldCo (534.4) (534.4) - Pension Settlement Other (1) Consolidated Adjusted EBITDA (1) Other includes acquisition expenses 21

22 Pro Forma Adjusted EBITDA Reconciliation ($ in millions) 2017 Nine Months Ended Sept. 30, 2017 Nine Months Ended Sept. 30, 2018 Pro Forma Net Income (Loss) Plus: Interest Expense, net Income Tax Expense (Benefit) Depreciation and Amortization Restructuring Costs Environmental Reserve Adjustment AT Dynamics Impairment Charge Pension Settlement Other (1) Pro Forma Adjusted EBITDA (1) Other includes acquisition expenses 22

23 Calculation of Last Twelve Months (LTM) Pro Forma Adjusted Segment EBITDA ($ in millions) Plus: Less: Segment Profit Segment Profit of Deconsolidated Entities Pro Forma D&A Adjustments Sealing Products Pro Forma Inventory FMV Adjustment Pro Forma Segment Profit Acquisition Expenses Restructuring Costs D&A Expense Pro Forma Adjusted Segment EBITDA Nine Months Ended Sept. 30, 2018 (1) Year Ended December 31, 2017 (2) (5.8) Nine Months Ended Sept. 30, 2017 (1) (5.8) LTM Ended Sept. 30, ($ in millions) Plus: Less: Segment Profit Segment Profit of Deconsolidated Entities Pro Forma D&A Adjustments Engineered Products Pro Forma Inventory FMV Adjustment Pro Forma Segment Profit Acquisition Expenses Restructuring Costs D&A Expense Pro Forma Adjusted Segment EBITDA Nine Months Ended Sept. 30, 2018 (1) Year Ended December 31, 2017 (2) Nine Months Ended Sept. 30, 2017 (1) LTM Ended Sept. 30, ($ in millions) Plus: Less: Segment Profit Segment Profit of Deconsolidated Entities Pro Forma D&A Adjustments Power Systems Pro Forma Inventory FMV Adjustment Pro Forma Segment Profit Acquisition Expenses Restructuring Costs D&A Expense Pro Forma Adjusted Segment EBITDA Nine Months Ended Sept. 30, 2018 (1) Year Ended December 31, 2017 (2) Nine Months Ended Sept. 30, 2017 (1) LTM Ended Sept. 30, (1) Information from our third quarter 2018 earnings release dated October 31, 2018 and available at our website. (2) In the first quarter of 2018, we adopted an accounting standard that requires an employer to report the service cost component of pension and other postretirement benefits expense in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. We recast our Pro Forma Segment Profit to reflect the retrospective application of this guidance. For the year ended December 31, 2017 this resulted in a decrease in Sealing Product Segment Profit ($0.5 million), an increase in Engineered Products Segment Profit ($0.3 million), an increase in Power Systems Segment Profit ($0.4 million), and an increase in Sealing Products Segment Profit of Deconsolidated Entities ($0.3 million). 23

24 Net Debt & Liquidity Summary Net Debt Bridge $ millions September 30, 2018 Credit Facility $34 Senior Notes $445 Capital Lease Obligations $1 A Debt Components $480 B Cash and Equivalents $120 C = (A B) Net Debt $360 D LTM September 30, 2018 Pro Forma EBITDA $212 E = (C / D) Leverage Ratio 1.7x Note: Including the approximate $32M tax refund that we expect to receive in the remainder of 2018, the adjusted net debt-to-ltm pro forma adjusted EBITDA multiple would be approximately 1.5x. 24