EnPro Industries(NPO) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Enpro reported adjusted EBITDA of $238 million for 2023, with total margins at 22.5% despite challenges in the semiconductor market [6][8] - Fourth quarter adjusted EBITDA was$ 46.9 million, a decrease of approximately 12% year-over-year, with an adjusted EBITDA margin of 18.8%, down 80 basis points [8][47] - Adjusted diluted earnings per share for the fourth quarter was $1.19, reflecting an 8.5% decrease compared to the prior year [47] Segment Performance Changes - Sealing Technologies sales were$ 147 million in the fourth quarter, down 6.3%, impacted by declines in commercial vehicle OEM sales and softness in various markets [9][19] - Advanced Surface Technologies (AST) sales for the fourth quarter were $102.1 million, a decrease of 11.5% year-over-year, primarily due to weakness in semiconductor capital equipment spending [20][42] - Adjusted segment EBITDA for Sealing Technologies decreased approximately 21% compared to the prior year, with a margin of 22.4% [49] Market Data and Key Metrics Changes - The commercial vehicle market is expected to see a 25% decline in trailer builds in 2024, affecting OEM demand [54] - The semiconductor market is anticipated to recover, with expectations of a near doubling by the end of the decade [16][55] - The aftermarket segment is expected to remain strong, benefiting from increased maintenance demand as OEM builds decline [93] Company Strategy and Industry Competition - Enpro's strategy includes technological differentiation, vertical integration, and regional expansion, particularly in the semiconductor sector [16][22] - The acquisition of Advanced Micro Instruments (AMI) is expected to enhance capabilities in compositional analysis and broaden the Sealing Technologies segment [43][108] - The company aims to maintain a disciplined focus on profitability while investing in growth opportunities across various segments [100] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the semiconductor market recovery, indicating that the first quarter of 2024 may represent the bottom of the decline [24][55] - The company expects total sales growth in the low to mid-single digits for 2024, with adjusted EBITDA projected between$ 260 million and $280 million [23][27] - Management noted that pricing power may not be as strong in 2024 due to moderating inflation compared to previous years [104] Other Important Information - Free cash flow for 2023 was over$ 174 million, significantly up from about $77 million in the prior year [50] - Capital expenditures for 2024 are expected to be around$ 60 million, focusing on growth investments in Advanced Surface Technologies [52][86] - The company celebrated a 59% reduction in total recordable incident rate and a 47% reduction in lost time case rate for safety achievements in 2023 [7] Q&A Session Summary Question: Clarification on organic growth guidance and AMI inclusion - Management clarified that AMI's contribution is included in the EBITDA guidance, with expectations of flat organic growth excluding AMI and AST [33][34] Question: Performance expectations for the aftermarket segment - The aftermarket is expected to remain strong, with pricing power holding steady despite OEM declines [93] Question: Insights on the semiconductor market recovery - Management noted early signs of recovery in the semiconductor market, with expectations for a gradual improvement [62][80] Question: Capital expenditures and growth investments - The increase in capital expenditures is attributed to geographic expansion and facility upgrades, particularly in Arizona and Asia [86][87] Question: Long-term margin expectations for Sealing Technologies - Long-term margins are expected to remain around 28%, depending on industry mix and volume [110]