EnPro Industries Investor Presentation Engineered Products for a - - PowerPoint PPT Presentation

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EnPro Industries Investor Presentation

“Engineered Products for a Demanding and Safer World”

Q4 2018

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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 1995. 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

• f 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.

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Who is EnPro?

Leading provider of highly-engineered solutions for mission critical applications

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Attractive portfolio of businesses

Company Snapshot Sales Mix (3)

67% 21% 12% 48% 52%

Sales by Channel Sales by Geography Sales by Market

26% 15% 11% 10% 9% 7% 7% 8% 4% 4%

HD/MD Truck General Industrial Navy & Marine Chemical & Material Processing Power Generation Oil & Gas Automotive Semiconductor Aerospace Other Europe ROW North America OEM Aftermarket

• 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
• NYSE Ticker: NPO
• Market Cap: ~$1.4 billion
• Diluted Shares Outstanding: ~20.9 million
• Dividend: $0.96/share
• Dividend Yield: ~1.5%
• LTM Q3 2018 Pro Forma (2) Sales: $1,513 million
• LTM Q3 2018 Pro Forma (2) Adjusted EBITDA: $212 million

Trading Statistics (1) Company Overview

(1) Trading metrics as of 11/23/18. (2) See appendix for pro forma financial reconciliations. (3) Based on pro forma sales.

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Representative Markets: Segment LTM Q3 ’18 Pro Forma(1):

• Sales: $236M
• Adjusted EBITDA Margin: 12%

Representative Markets: Segment LTM Q3 ’18 Pro Forma(1):

• Sales: $324M
• Adjusted EBITDA Margin: 17%

Representative Markets: Segment LTM Q3 ’18 Pro Forma(1):

• Sales: $957M
• Adjusted EBITDA Margin: 17%

EnPro’s three segments

(1) See appendix for pro forma financial reconciliations.

Sealing Products Engineered Products Power Systems

Oil & Gas Food & Pharma Processing Heavy-Duty Trucking Metals & Mining Aerospace Semiconductor Oil & Gas ConAg Chemical Processing Natural Gas Transmission Automotive General Industrial Navy & Marine Power Generation

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EnPro’s investment merits

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

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EnPro’s businesses share common characteristics

Business Characteristics

Leading brands (many 100+ years old) Mission critical Highly diversified customer base Highly-engineered Low-cost relative to applications served Balanced OEM and aftermarket presence Products specified / certified for applications High switching costs Ability to maintain & selectively raise prices Stable cash flows Competitive barriers Premium pricing Healthy margins Muted cyclicality

EnPro’s characteristics produce an attractive financial profile

Benefits

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Investments in innovation and new product development drive organic growth

Diverse innovation portfolio creates large growth opportunities, while speeding time to market and minimizing risk

Trident OP

Wide Portfolio of Innovation Opportunities in Highly Differentiated Products

GYLON EPIX Hydrodynamic Seals Evolution Gasket Proflo EOS Common Rail Fuel Injection System Trifecta Zip-Torq Axle Spindle Nuts

Note: The above is a selection of representative examples from EnPro’s innovation portfolio.

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Resources focused on markets with above average long-term growth

Investments in R&D, capital, and acquisitions will be disproportionately focused on markets with favorable characteristics and long-term trends

Semiconductor Aerospace Power Generation Hygienic

EnPro’s Key Growth Markets

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EnPro Operating System drives margin expansion while embracing the nuances of the niche markets we serve

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

Organizational Construct

Corporate EnPro Strategy Capital Allocation Talent Development Business Unit Strategy Business Unit Management Commercial Excellence Operational Excellence Innovation

Shared: Best practices facilitated by Corporate; Business Units are accountable for results.

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Balanced capital allocation

Capital Allocation Strategy Key Objectives

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Invest in new product development, new applications, and new markets



Pursue bolt-on and adjacency acquisitions to support growth strategies



Fund disciplined growth and maintenance capital expenditures

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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

2017 Capital Allocation Summary

Strategic Acquisitions $45M Sustaining & Maintenance Capex $28M Shareholder Dividends $19M Long-Term R&D Growth Capex $17M Share Repurchases $12M

Note: See appendix for pro forma net leverage calculation.

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Guidance Commentary

2018 Guidance

• 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

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

2018 Guidance(1) Low High Sales Growth 8.0% 9.0% Adjusted EBITDA $217M $220M

$ in millions

(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.

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Appendix

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Sales Mix (1)

75% 13% 12%

North America Europe

40% 15% 11% 9% 8% 6% 5% 6%

HD/MD Truck General Industrial Powergen Semicon Oil & Gas Aerospace Other ROW

Sealing Products Snapshot

(1) Based on pro forma segment sales.

Representative Products

Chemical & Material Processing

51% 49%

Aftermarket OEM

Sales by Geography Sales by Market Sales by Channel

Sanitary Hoses Hydrodynamic Seals Bearing Isolators Metal Seals Wheel End Products

15 15 51% 33% 16%

North America Europe

31% 27% 22% 8% 7% 3% 2%

Automotive General Industrial Chemical & Material Processing Oil & Gas Aerospace Other ROW Powergen

Engineered Products Snapshot

(1) Based on pro forma segment sales.

Sales Mix (1) Representative Products

31% 69%

Sales by Geography

Aftermarket OEM

Sales by Market Sales by Channel

Bushings Metal Bearings Plastic & Polymer Bearings Compressor Valve Components Lubrication Systems

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Power Systems Snapshot

(1) Based on pro forma segment sales.

Sales Mix (1) Representative Products

80% 13% 7%

Europe North America ROW

65% 32% 2%

Navy & Marine Powergen

59% 41%

Aftermarket OEM

Sales by Geography Sales by Market Sales by Channel

Colt-Pielstick Engine Model PA6B Opposed Piston Engine Model 38 Nextgen Opposed Piston Engine

Oil & Gas

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HPS Acquisitions Aerospace Components Pikotek Pipeline Sealing Rubber Fab Hygienic Components Tara Technologies Semiconductor Crewson, Duraline, Rome, Motor Wheel, and CVC Air Springs Wheel-End Sealing Suspensions Brake Products Mileage & Tire Solutions PSI Industrial Sealing GAFF JV

We have expanded our growth opportunities through bolt-on and adjacency acquisitions

High-Performance Sealing ATDynamics

Growth Node Creation Via Inorganic Activity Over Time Growth Nodes (Blue)

Sealing Products Illustrative View: Success Creating New “Growth Nodes”

Qualiseal Kaiser

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Reconciliation of Net Sales to Pro Forma Net Sales

Sealing Products 2016 2017 LTM Q3 ‘18 Net Sales 705.6 804.3 957.2 Adjustments: Sales of Unconsolidated Entities 189.2 119.1

• Intercompany Sales

(42.5) (29.6)

• Pro Forma Net Sales

852.3 893.8 957.2 Engineered Products 2016 2017 LTM Q3 ‘18 Net Sales 277.1 301.1 324.2 Adjustments: Sales of Unconsolidated Entities 2.4 1.5

• Intercompany Sales

(1.5) (1.1)

• Pro Forma Net Sales

278.0 301.5 324.2 Power Systems 2016 2017 LTM Q3 ‘18 Net Sales 208.3 208.2 236.0 Adjustments: Sales of Unconsolidated Entities 4.2 5.3

• Intercompany Sales

(1.4) (2.0)

• Pro Forma Net Sales

211.1 211.5 236.0 EnPro 2016 2017 LTM Q3 ‘18 Net Sales 1,187.7 1,309.6 1,513.1 Adjustments: Sales of Unconsolidated Entities 195.8 125.9

• Intercompany Sales

(45.8) (33.0)

• Pro Forma Net Sales

1,337.7 1,402.5 1,513.1

$ in millions Note: Information from our third quarter 2018 earnings release dated October 31, 2018 and available at our website.

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Calculation of Last Twelve Months (LTM) Pro Forma Segment Sales

($ in millions) Consolidated Net Sales Sales of Unconsolidated Entities Intercompany Sales Pro Forma Net Sales Plus: Nine Months Ended Sept. 30, 2018(1) 737.2

• 737.2

Year Ended December 31, 2017 804.3 119.1 (29.6) 893.8 Less: Nine Months Ended Sept. 30, 2017(1) 584.3 119.1 (29.6) 673.8 LTM Ended Sept. 30, 2018 957.2

• 957.2

($ in millions) Consolidated Net Sales Sales of Unconsolidated Entities Intercompany Sales Pro Forma Net Sales Plus: Nine Months Ended Sept. 30, 2018(1) 249.4

• 249.4

Year Ended December 31, 2017 301.1 1.5 (1.1) 301.5 Less: Nine Months Ended Sept. 30, 2017(1) 226.3 1.5 (1.1) 226.7 LTM Ended Sept. 30, 2018 324.2

• 324.2

($ in millions) Consolidated Net Sales Sales of Unconsolidated Entities Intercompany Sales Pro Forma Net Sales Plus: Nine Months Ended Sept. 30, 2018(1) 167.2

• 167.2

Year Ended December 31, 2017 208.2 5.3 (2.0) 211.5 Less: Nine Months Ended Sept. 30, 2017(1) 139.4 5.3 (2.0) 142.7 LTM Ended Sept. 30, 2018 236.0

• 236.0

($ in millions) Consolidated Net Sales Sales of Unconsolidated Entities Intercompany Sales Pro Forma Net Sales Plus: Nine Months Ended Sept. 30, 2018(1) 1,150.6

• 1,150.6

Year Ended December 31, 2017 1,309.6 125.9 (33.0) 1,402.5 Less: Nine Months Ended Sept. 30, 2017(1) 947.1 125.9 (33.1) 1,039.9 LTM Ended Sept. 30, 2018 1,513.1

• 1,513.1

Sealing Products Engineered Products Power Systems EnPro

Note: Information from our third quarter 2018 earnings release dated October 31, 2018 and available at our website.

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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, 2018 46.7 163.7 163.7 Year Ended December 31, 2017 539.8 187.7 214.5 Less: Nine Months Ended Sept. 30, 2017 505.6 139.1 165.9 LTM Ended Sept. 30, 2018 80.9 212.3 212.3

Note: See accompanying reconciliations.

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Consolidated Adjusted EBITDA Reconciliation

($ in millions) 2017 Nine Months Ended

• Sept. 30, 2017

Nine Months Ended

• Sept. 30, 2018

Consolidated Net Income (Loss) 539.8 505.6 46.7 Plus: Interest Expense, net 49.4 41.2 20.8 Income Tax Expense (Benefit) 37.7 55.7 16.4 Depreciation and Amortization 63.8 45.3 54.6 Restructuring Costs 5.1 3.8 7.1 Environmental Reserve Adjustment 8.7 5.2 2.4 AT Dynamics Impairment Charge 10.1 10.1

• Fair Value Adjustment to Acquisition Date Inventory

4.7 4.2

• Gain on Reconsolidation of GST and OldCo

(534.4) (534.4)

• Pension Settlement
• 12.8

Other(1) 2.8 2.4 2.9 Consolidated Adjusted EBITDA 187.7 139.1 163.7

(1) “Other” includes acquisition expenses

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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) 53.7 43.4 46.7 Plus: Interest Expense, net 29.9 21.7 20.8 Income Tax Expense (Benefit) 32.2 26.0 16.4 Depreciation and Amortization 73.3 54.8 54.6 Restructuring Costs 5.1 3.7 7.1 Environmental Reserve Adjustment 8.7 5.2 2.4 AT Dynamics Impairment Charge 10.1 10.1

• Pension Settlement
• 12.8

Other(1) 1.5 1.0 2.9 Pro Forma Adjusted EBITDA 214.5 165.9 163.7

(1) “Other” includes acquisition expenses

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Calculation of Last Twelve Months (LTM) Pro Forma Adjusted Segment EBITDA

Sealing Products

($ in millions) Segment Profit Segment Profit of Deconsolidated Entities Pro Forma D&A Adjustments Pro Forma Inventory FMV Adjustment Pro Forma Segment Profit Acquisition Expenses Restructuring Costs D&A Expense Pro Forma Adjusted Segment EBITDA

Plus: Nine Months Ended Sept. 30, 2018(1) 78.9

• 78.9

1.6 6.3 38.5 125.3 Year Ended December 31, 2017(2) 90.4 22.6 (5.8) 4.1 111.3 1.2 3.6 51.3 167.4 Less: Nine Months Ended Sept. 30, 2017(1) 64.7 22.6 (5.8) 3.8 85.3 1.0 2.8 38.8 127.9 LTM Ended Sept. 30, 2018 104.6

• 0.3

104.9 1.8 7.1 51.0 164.8

Engineered Products

($ in millions) Segment Profit Segment Profit of Deconsolidated Entities Pro Forma D&A Adjustments Pro Forma Inventory FMV Adjustment Pro Forma Segment Profit Acquisition Expenses Restructuring Costs D&A Expense Pro Forma Adjusted Segment EBITDA

Plus: Nine Months Ended Sept. 30, 2018(1) 34.9

• 34.9
• 0.6

11.8 47.3 Year Ended December 31, 2017(2) 30.1 0.2

• 30.3

0.1 1.5 16.8 48.7 Less: Nine Months Ended Sept. 30, 2017(1) 25.6 0.1

• 25.7

0.1 1.0 12.5 39.3 LTM Ended Sept. 30, 2018 39.4

• 39.4
• 1.1

16.1 56.6

Power Systems

($ in millions) Segment Profit Segment Profit of Deconsolidated Entities Pro Forma D&A Adjustments Pro Forma Inventory FMV Adjustment Pro Forma Segment Profit Acquisition Expenses Restructuring Costs D&A Expense Pro Forma Adjusted Segment EBITDA

Plus: Nine Months Ended Sept. 30, 2018(1) 12.5

• 12.5
• 0.2

4.3 17.0 Year Ended December 31, 2017(2) 29.4 1.5

• 30.9
• 5.2

36.1 Less: Nine Months Ended Sept. 30, 2017(1) 20.9 1.5

• 22.4
• 3.4

25.8 LTM Ended Sept. 30, 2018 21.0

• 21.0
• 0.2

6.1 27.3 (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).

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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.