Enpro Inc. (NYSE:NPO) is a leading-edge industrial technology company focused on critical applications across a diverse group of growing end markets such as semiconductor, industrial process, aerospace, food, photonics, biopharmaceuticals and life sciences. The company designs, develops, manufactures, and markets proprietary, value-added products and solutions that safeguard a variety of critical environments.

Financials

In fiscal year 2023, Enpro reported annual net income of $11 million, annual revenue of $1.059 billion, annual operating cash flow of $207.8 million, and annual free cash flow of $173.9 million. The company manages its business through two reportable segments: Sealing Technologies and Advanced Surface Technologies.

Business Overview

Sealing Technologies Segment

The Sealing Technologies segment engineers and manufactures value-added products and solutions that safeguard a variety of critical environments, including metallic, non-metallic and composite material gaskets; dynamic seals; compression packing; elastomeric components; custom-engineered mechanical seals; hydraulic components; test, measurement and sensing applications; sanitary gaskets; hoses and fittings for hygienic process industries; and commercial vehicle solutions. These products are used in a wide range of markets, such as chemical and petrochemical processing, nuclear energy, hydrogen, natural gas, food and biopharmaceutical processing, primary metal manufacturing, mining, water and waste treatment, commercial vehicle, aerospace (including commercial space), medical, filtration and semiconductor fabrication.

Advanced Surface Technologies (AST) Segment

The Advanced Surface Technologies (AST) segment applies proprietary technologies, processes, and capabilities to deliver a highly differentiated suite of products and solutions for challenging applications in high-growth markets. AST's offerings include cleaning, coating, testing, refurbishment and verification for critical components and assemblies used in semiconductor manufacturing equipment, specialized optical filters and proprietary thin-film coatings for industrial technology, life sciences, and semiconductor markets, engineering and manufacturing complex front-end wafer processing sub-systems and new and refurbished electrostatic chuck pedestals for the semiconductor equipment industry, and engineering and manufacturing edge-welded metal bellows for the semiconductor equipment industry and critical applications in the space, aerospace and defense markets.

Recent Developments

In the first quarter of 2024, Enpro reported net sales of $257.5 million, down 8.9% year-over-year. The Sealing Technologies segment generated $171.6 million in sales, a 1.0% decrease compared to the prior year period, while the Advanced Surface Technologies segment reported $86.0 million in sales, a 21.4% decline. The revenue decline was primarily driven by continued weakness in the semiconductor market, which impacted the AST segment, as well as softer demand in certain end markets like commercial vehicle and food and pharmaceutical for the Sealing Technologies segment.

Despite the revenue decline, Enpro's Sealing Technologies segment maintained strong profitability, with adjusted segment EBITDA margins exceeding 30% in the first quarter. The segment benefited from strategic pricing actions, favorable product mix, cost controls, and the partial quarter contribution from the recently acquired Advanced Micro Instruments (AMI). AMI, a leading provider of highly-engineered, application-specific analyzers and sensing technologies, was acquired by Enpro in January 2024 for $208.9 million and is included within the Sealing Technologies segment.

In the Advanced Surface Technologies segment, adjusted segment EBITDA margins remained above 20% in the first quarter, despite the 21.4% revenue decline. The company is continuing to make strategic growth investments and advance operational improvement initiatives to position AST for long-term growth, as it expects the semiconductor market to stabilize and resume its growth trajectory.

Outlook

For the full year 2024, Enpro is maintaining its guidance issued in February, expecting total sales growth in the low to mid-single-digit range, adjusted EBITDA between $260 million and $280 million, and adjusted diluted EPS to range from $7 to $7.80. The company anticipates a slight sequential improvement in the Advanced Surface Technologies segment in the second quarter, driven by growth in its advanced node cleaning business and positive demand signals in its Chamber tool performance coatings business. In the Sealing Technologies segment, Enpro expects improved order patterns in certain shorter-cycle product lines, a firm backlog, and positive mix to offset weaker demand in the commercial vehicle OEM market.

Liquidity

Enpro's balance sheet remains in excellent shape, with a net leverage ratio of approximately 2.3 times trailing 12-month adjusted EBITDA, inclusive of the AMI acquisition and the purchase of the remaining non-controlling interest in Alluxa in the first quarter of 2024. The company's strong financial flexibility allows it to execute its strategic initiatives, both organically and through acquisitions that broaden its capabilities in markets with favorable secular tailwinds.

Conclusion

Enpro's portfolio of businesses offers proprietary, industrial technology-related products and solutions with high barriers to entry, compelling margins, strong cash flow, and recurring aftermarket revenue. The company's focus on applied engineering, innovation, and process know-how has driven a lasting aftermarket for many of its products and solutions, creating a foundation for profitable growth. Enpro's disciplined approach and rigor have enabled the company to perform well under diverse market conditions, showcasing the balance inherent in its portfolio.

As Enpro navigates the current market environment, the company remains well-positioned to capitalize on the recovery in the semiconductor market and continue delivering value to its shareholders. With its strong financial position, strategic investments, and innovative solutions, Enpro is poised to drive long-term growth and profitability across its diverse end markets.