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; 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 in this press release 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 Shares Outstanding: ~21.1 million Dividend: $0.96/share Dividend Yield: ~1.4% LTM Q Pro Forma (2) Sales: $1,480.0M LTM Q Pro Forma (2) EBITDA: $201.9M 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 8/2/18. (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 Q2 18 Pro Forma (1) : Sales: $932M Adjusted EBITDA Margin: 17% Segment LTM Q2 18 Pro Forma (1) : Sales: $322M Adjusted EBITDA Margin: 17% Segment LTM Q2 18 Pro Forma (1) : Sales: $231M Adjusted EBITDA Margin: 11% (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 2.0x at the end of Q2 EnPro s two pronged capital allocation approach has returned capital to shareholders anytime compelling investment opportunities were not available Note: See appendix for pro forma net leverage calculation. 11

12 2018 Guidance Guidance Commentary At the end of Q2, EnPro increased its expectation for full-year 2018 sales growth and decreased 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 $214 and $220 million for the year $10 million reduction to adjusted EBITDA is attributable to the stronger dollar and the second-quarter profitability challenges in heavy-duty trucking New range reflects a slightly improved outlook for the balance of the year $ in millions 2018 Guidance (1) Low High Sales Growth 8.0% 9.0% Adjusted EBITDA $214M $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 second-half 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 second quarter (June 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 Chemical & Material Processing Powergen Oil & Gas Aerospace Other 8% 9% Semicon 6% 5% 6% 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 Ring Valves 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 Reconciliation of Net Sales to Pro Forma Net Sales $ in millions Sealing Products LTM Q2 18 Net Sales Adjustments: Sales of Unconsolidated Entities Intercompany Sales (42.5) (29.6) (3.6) Pro Forma Net Sales Engineered Products LTM Q2 18 Net Sales Adjustments: Sales of Unconsolidated Entities Intercompany Sales (1.5) (1.1) - Pro Forma Net Sales Power Systems LTM Q2 18 Net Sales Adjustments: Sales of Unconsolidated Entities Intercompany Sales (1.4) (2.0) - Pro Forma Net Sales EnPro LTM Q2 18 Net Sales 1, , ,468.6 Adjustments: Sales of Unconsolidated Entities Intercompany Sales (45.8) (33.0) (3.9) Pro Forma Net Sales 1, , ,480.0 Note: Information from our second quarter 2018 earnings release dated August 1, 2018 and available at our website. 17

18 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: Six Months Ended June 30, 2018 (1) Six Months Ended June 30, 2018 (1) Year Ended December 31, (29.6) Year Ended December 31, (1.1) Less: Less: Six Months Ended June 30, 2017 (1) (26.0) Six Months Ended June 30, 2017 (1) (1.1) LTM Ended June 30, (3.6) LTM Ended June 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: Six Months Ended June 30, 2018 (1) Six Months Ended June 30, 2018 (1) Year Ended December 31, (2.0) Year Ended December 31, , (33.0) 1,402.5 Less: Less: Six Months Ended June 30, 2017 (1) (2.0) 86.8 Six Months Ended June 30, 2017 (1) (29.1) LTM Ended June 30, LTM Ended June 30, , (3.9) 1,480.0 Note: Information from our second quarter 2018 earnings release dated August 1, 2018 and available at our website. 18

19 Calculation of Last Twelve Months (LTM) Pro Forma Adjusted EBITDA ($ in millions) Consolidated Net Income (Loss) Consolidated Adjusted EBITDA Pro Forma Adjusted EBITDA Plus: Six Months Ended June 30, Year Ended December 31, Less: Six Months Ended June 30, LTM Ended June 30, Note: See accompanying reconciliations. 19

20 Consolidated Adjusted EBITDA Reconciliation ($ in millions) 2017 Six Months Ended June 30, 2017 Six Months Ended June 30, 2018 Consolidated Net Income (Loss) Plus: Interest Expense, net Income Tax Expense (Benefit) Depreciation and Amortization Restructuring Costs Environmental Reserve Adjustment Goodwill and Intangible Impairment Loss on Debt Exchange AT Dynamics Impairment Charge Acquisition Expenses Fair value adjustment to acquisition date inventory Gain on reconsolidation of GST and OldCo (534.4) - - Asbestos settlement Other Consolidated Adjusted EBITDA

21 Pro Forma Adjusted EBITDA Reconciliation ($ in millions) 2017 Six Months Ended June 30, 2017 Six Months Ended June 30, 2018 Pro Forma Net Income (Loss) Plus: Interest Expense, net Income Tax Expense (Benefit) Depreciation and Amortization Restructuring Costs Environmental Reserve Adjustment Goodwill and Intangible Impairment Loss on Debt Exchange AT Dynamics Impairment Charge Acquisition Expenses Other Pro Forma Adjusted EBITDA

22 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 Six Months Ended June 30, 2018 (1) Year Ended December 31, (5.8) Six Months Ended June 30, 2017 (1) (5.0) LTM Ended June 30, (0.8) ($ 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 Six Months Ended June 30, 2018 (1) Year Ended December 31, Six Months Ended June 30, 2017 (1) LTM Ended June 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 Six Months Ended June 30, 2018 (1) Year Ended December 31, Six Months Ended June 30, 2017 (1) LTM Ended June 30, Note: Information from our second quarter 2018 earnings release dated August 1, 2018 and available at our website. 22

23 Net Debt & Liquidity Summary Net Debt Bridge $ millions June 30, 2018 Credit Facility $43 Senior Notes 445 A Debt Components $488 B Cash and Equivalents $93 C = (A B) Net Debt $395 D LTM June 30, 2018 Pro Forma Adjusted EBITDA $202 E = (C / D) Leverage Ratio 2.0x Note: Including the approximate $32M tax refund that we expect to receive in the remainder of 2018 and the $5M asbestos-related insurance recovery expected in the second half of the year, the adjusted net debtto-ltm pro forma adjusted EBITDA multiple would be approximately 1.8x. 23