Good morning. My name is Virgil and I will be your conference operator today. At this time, I would like to welcome everyone to the EnPro Industries’ 2016 Fourth Quarter and Year End Results Conference Call. [Operator Instructions] Thank you. Chris O’Neal, Vice President, Strategy and Corporate Development and Investor Relations, you may begin your conference. Chris O’Neal: Thank you, Virgil. Good morning and welcome to EnPro Industries’ quarterly earnings conference call. I remind you that our call is also being webcast at enproindustries.com where you can find the slides that accompany the call. Steve MacAdam, our President and CEO and Milt Childress, our Senior Vice President and CFO will begin their review of our fourth quarter performance and outlook in a moment. But before we begin our discussion, I will point out that you may hear statements during the course of this call that express a belief, expectation or intention as well as those that are not historical fact. These statements are forward-looking and 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 are referenced in the Safe Harbor statement included in our press release and are described in more detail, along with other risks and uncertainties in our filings with the SEC, including our Form 10-K for the year ended December 31, 2015 and our Form 10-Q for the quarter ended March 31, 2016. We do not undertake to update any forward-looking statements made on this conference call to reflect any change in management’s expectations or any change in assumptions or circumstances on which such statements are based. Our earnings release and conference call presentation materials contain additional disclosures regarding non-GAAP financial information, collective references to EnPro and our subsidiaries, the deconsolidation…

Thanks, Chris. Good morning, everyone. I continue to be pleased with our team’s effort to deliver the best possible performance in market conditions that remain very challenging. While the economic climate has required us to focus on cost reduction and restructuring activities over the past 2 years, we have also maintained a clear focus on investing in foundational capabilities that are important to sustaining future success. We have accelerated the pace of innovation in our company, upgraded our facilities, developed our talent base, improved our productivity, built our commercial capabilities, and upgraded several of our major IT systems. Our goal is to build the great company that delivers value for our investors throughout the economic cycle. And I am confident that we will see substantial benefits as our primary markets stabilize and ultimately recover. For the quarter, despite our successful efforts to reduce cost, restructure or exit underperforming units, gain supply chain savings and achieve production efficiencies, our total pro forma adjusted EBITDA declined by 21% from the fourth quarter of last year on a pro forma sales decline of 12%. The quarterly sales decline resulted from lower volumes across nearly all the markets we serve and was negatively affected by 4 fewer business days compared to a year ago due to year-over-year differences in our accounting quarters. The lower EBITDA, compared to a year ago, was the result of several factors, including the lower sales, a sizable charge for Power Systems EDF contract that was primarily currency-related and overall company unfavorable currency translation. As shown on Slide 6, year-over-year difference in EDF charges that reduced number of business days currency translation, had a combined negative effect on quarterly pro forma adjusted EBITDA of approximately $6 million, which equates to over 60% of the year-over-year quarterly decline. For the year,…

Thank you, Steve. As discussed before, the pro forma segment results that I will discuss are prepared as if GST had been consolidated on the basis described in our earnings release. As a reminder, most of the difference between consolidated and pro forma segment information is in sealing products, with only small differences in engineered products and power systems stemming from foreign operations of those segments included in GST foreign subsidiaries. It’s important to note that the pro forma results do not represent a projection of the financials as of the expected future date of reconsolidation. Before I begin, I want to note the point that Steve made earlier about the accounting calendar. In the fourth quarter of 2016, we had four fewer business days compared to the fourth quarter of 2015. We estimate this 6.2% decrease in the number of days to a quite roughly to $20 million of sales and at least $3 million in pro forma adjusted EBITDA. I will reference this factor in my comments, while reviewing our results, but will not quantify the impact by segment, given the imprecision of the estimate. Our pro forma fourth quarter sales of $319.6 million were down 11.5% from the same period of 2015. Net of a small divesture, acquisitions contributed $4.1 million and foreign currency translation reduced sales by $3.1 million. Excluding the impact of these factors, pro forma sales for the quarter were 11.8% lower compared to a year ago. The organic sales decline was driven primarily by continued weak demand that we are facing across many of our end markets. A planned exit from unprofitable customers in the heavy duty trucking air springs product line, restructuring activities over the past in Engineered Products segment and the difference in the accounting quarters as mentioned previously. I will…

Thanks Milt. We will close with the discussion of the current market conditions and our outlook for 2017 and then take your questions. As we have discussed throughout our comments, demand in nearly all our markets remained soft in the fourth quarter, with semiconductor and food and pharma once again being notable exceptions. Aside from those markets, the macroeconomic drivers that affect our business continued to suggest sluggish demand or a weak recovery over the next year. While we are optimistic that tax reform and a less restrictive regulatory environment will eventually spur demand, we are concerned by the uncertainty of the timing and impact of such potential changes. Given current microeconomic – macroeconomic forecasts, order patterns and customer feedback, we expect 2017 to be a year of low sales growth with adjusted EBITDA excluding future acquisitions, restructuring cost, the impact of changes driven by foreign exchange and any litigation or environmental charges, increasing from 2016 adjusted EBITDA of $185.6 million to 2017 adjusted EBITDA between $188 million and $193 million for the year. I want to be clear that this guidance is based on demand levels we have been experiencing, not positive assumptions about demand improvement. We are managing costs consistent with a low growth economy, while we believe that – which we believe to be prudent given our experience over the last 2 years. As we have described in the past, most of our businesses have relatively short order to shipment cycles, which, together with uncertainty related to policy reform, naturally limits our visibility of future demand and complicates our ability to forecast accurately. Again, I want to emphasize that regulatory changes, market developments and company performance could cause our results to deviate either positively or negatively relative to this guidance. While we are not providing guidance by…

[Operator Instructions] Your first question comes from the line of Jeff Hammond from KeyBanc Capital Markets. Please go ahead.

Hey, good morning guys.

Good morning, Jeff.

Good morning, Jeff.

So just maybe just to flush out the guidance a little bit. One, in your 1Q to 1Q comments, I think on Slide 7, you pointed a number of errors that were down in 4Q kind of going to flat. It just seemed like as we go into 1Q, I don’t know if that’s easy comps of if you are seeing some stabilization there? So maybe just talk about maybe what’s changing there? And then just on the guide, I guess, the 185, if I’m right, includes the $3 million charge in the FX losses, which I guess wouldn’t repeat. So maybe just bridge where some of the negative year-on-year impact is in the guidance?

Why don’t you take the numbers, and I can talk about the markets.

Yes. You want me to add. Yes, Jeff, you are right. We have got – in terms of your assumptions that the EDF charge for the quarter – not just for the quarter, but for all the year, is included in the calculation of adjusted EBITDA. And it is also net as you point out the $3 million charge related to ABL that we had earlier in the year. So that calculation, your assumption on the calculation is correct. When you look at the changes year-over-year that we are seeing, once again, as Steve said in his outlook comments, it’s based on market conditions as we see them today. We are hopeful that we will see more expansion as we approach the second half of the year, but based on our experience, we are managing in a prudent fashion. So our guidance is provided in that context. One of the year-over-year changes that we will expect is some increase in expenses year-over-year in conjunction with incentive comp. I mentioned earlier in my comments on corporate expense, but it has repercussions throughout the entire company, not just at the corporate level, because we had significantly lower incentive comp expenses this year given our performance compared to the year ago. And so we would expect some normalization there. So that will be a year-over-year increase. We also are closely monitoring our situation in Fairbanks. We are assuming it’s neutral from an FX standpoint so that there is no further charges at EDF. But as Steve mentioned, it’s going to be another below average year in power systems, because of the $38 million in revenues that are essentially at zero margin. We are expecting to see some good solid earnings growth in all of our businesses, in all of our segments. And then one other point on power systems that I will note is we are expecting in conjunction with the new engine development in power systems, for R&D spending – R&D spending to increase year-over-year. As you know, this is what we referred to as OP2.0 engine. And as you know, over the past couple of years, our R&D expense has been higher than prior to recent years due to this effort. We are very excited about this opportunity, continue to be, but there is going to be a fairly significant ramp up in R&D spend in 2017 according to our current plans.

Jeff is that enough or would you...

No, that’s helpful. Just on the moving pieces on savings and inflation, can you just so on the $20 million, can you just talk about what hit in ‘16 and what your incremental carryover is in ‘17? And then I don’t know if you can quantify, Milt, these number of items that are inflationary instead of comp, R&D, other?

Yes. Well, we are convinced that the savings, the annualized savings are real and have taken hold. And the best gauge of it, Jeff, is to look at our overall headcount. I provided those statistics during my comments. So – and the headcount is a large part of what drives cost in our company. So, we had if you look at total headcount I probably will repeat what I have said earlier, but we are down from – if you look at –go back to a base of 2014, so over the past couple of years when we had a lot of restructuring activity, our headcount is down about 11%. So, we have taken comps. We have resized a number of our businesses. We have had some facility consolidations, a number of moves. And so those are very real and will continue to get the benefit of it. We will have, going into ‘17, cost increases associated with compensation, increases that we will have of a modest amount. As I mentioned, if we hit our targets for the year, we will have higher incentive compensation for the year. So, all of those things go into the mix and these costs are spread throughout the company, it’s in SG&A and it’s in manufacturing costs. So as we have actual experience for ‘17, we will focus on way to kind of show you that that’s still there, but it’s embedded – it’s embedded in our – the benefits that we have realized are embedded in our budgets for the new year.

Okay. Thanks, guys.

Your next question comes from the line of Ian Zaffino from Oppenheimer. Please go ahead.

Hi, thank you. Just kind of wanted to drill down on maybe some of your M&A pipeline kind of what you are seeing, your thoughts on deploying cash at this moment, maybe using the strong dollar though. Internationally kind of give us a sense of what you are doing there and how that foot would return to cash to shareholders and then also maybe also couple that with basically this pending settlement on the asbestos GST side? Thanks.

Well, we are contingent. Ian, this is Steve, I will let Milt talk about the cash flow and financing implications of the ACRP trust funding and so forth in a second. So we will cover that, but we continue to be active in the M&A market. We still looked at a lot of deals in 2016 and actually came close on a couple. And for various reasons, one attractive deal that we were essentially going down the pike on, we found some stuff in due diligence that made us nervous and the seller wasn’t really – wasn’t willing to adjust the price. We thought it was too risky, so we backed out of that. But the pipeline is reasonably robust. I would be surprised if we don’t do a few deals in 2017. The pricing, I am sure you are aware the pricing for in the M&A world continues to be a little challenging to us. We are trying to be very, very disciplined, but we still have seen pockets of where we can get good deals at reasonable valuations. So, that’s just kind of – we don’t have a concerted strategy to go international, we also don’t have a strategy to not – we kind of do it based on a more strategic view of the fit of the business into our current product portfolio. We want to be able to reach out and enter other markets that have perhaps some wind in our back, like the example of Rubber Fab and food and pharma and so forth. But that’s what drives our M&A activity more so than just using a strong dollar, for instance. So well, I will come back. I do want to make a point to everybody on the call of maybe this is a good…

Alright, great and that’s very helpful. Thank you.

[Operator Instructions] Your next question comes from Justin Bergner from Gabelli & Company. Please go ahead.

Good morning and thank you for taking my questions.

How are you doing, Justin?

Good. Thanks. First question is on guidance, I think about the framework has won whereby you are sort of taking the fourth quarter sales and EBITDA, maybe adjusting those upwards for the lost impact from the fewer business days and sort of taking that forward into 2017 with some perhaps additional zero margin power system sales and then headwinds on the EBITDA line from R&D and incentive comp, is that a reasonable way to think about how you are constructing your 2017 guidance?

Yes. Justin, that’s right. And qualitatively, that’s right. Now, our fourth quarter and first quarter are always our most challenging quarters. And it’s frustrating for those watching from outside the company, it’s frustrating for us, because there is two things that really move our fourth quarter a lot, which have at least in the past few years, which is what happens in power systems, if there like – there was in 2015, a large completed contract shipment that was profitable for us. And so when that doesn’t happen in the quarter, that’s a big deal. And there is a lot of – in the fourth quarter, power systems can swing a lot based on engine shipments, as well as just a normal volatility in aftermarket parts and service. And the second thing is in Technetics Group, the nuclear shipments we have, which are our highest margins, some of our highest margin products, can move around a little a lot and the team is always working to get things out in the fourth quarter, which we were very successful at in 2015. And in 2016, we just didn’t have as many nuclear shipments. And so that one factor tends to move Technetics a lot. So when you take those two impacts out of our kind of seasonal pattern and you just look at the core within engineered and the core within sealing, our Q2 and Q3 are the strongest quarters versus Q1 and Q4 because of just normal weather reasons, automotive demand reasons, just on and on – trucking reasons, there is just not as much maintenance done in the winter months and so forth, right. So all of those factors combined, so the only caveat I would say to your method is we never look at just the fourth quarter, we understand that just seasonally that’s low, but we did take, as you described, we did take kind of the pace and feel of that and essentially carried forward with the seasonal adjustments that we do just kind of naturally. Let me say one more thing, because Chris handed me a noted that in my previous comments about how much work we did in 2016, I inadvertently referred to all the work we did on the air springs business, I inadvertently refer to that as Rubber Fab, I apologize. Hopefully, those that track us know, I was referring – when I talked about extracting the business from Vance and Continental and the new facilities that we had to build in the new systems and so forth, that was all relative to air springs, which was an acquisition that we did in 2015, but most of the integration activity happened in 2016. So I just wanted to clarify that in case anybody picked that up. But Justin, let me go back to you, did that answer – did I answer your question?

Yes. Thank you. Just put one follow-up there would be, if EBITDA per quarter is going to go down from sort of $50 million to $47.5 million, I would assume from your earlier comments, that’s primarily incentive comp and R&D, but just wanted to check if there are other factors sort of mix, pricing or otherwise, in terms of that quarterly EBITDA run rate going down, as you get into ‘17?

Yes. It’s a mix in a lot of things, Justin. As you might expect, we go through a fairly extensive bottoms up process of looking at our outlook for the year. And so it’s influenced by the number of initiatives that we have planned, it’s influenced by what we know about power systems and the engine backlog as we have discussed. Obviously, it does adjust for incentive comp because at the beginning of the year, we are always looking at that more along – with the assumption, we are going to be meeting or exceeding our targets for the year. So there will be which we did not do in 2016. So there is always an adjustment there. So there are a whole host of factors, so I want to be careful not to suggest, it’s just R&D and incentive comp, because it’s a fairly kind of detail look, that gives as the underpinning of providing that range for you.

But those are two of the bigger movers year-over-year?

Let me make one comment on R&D. This is kind of a good news and bad news story. The good news is the OP2.0 performance in our most recent testing, which is 100% load and we feel like we really have all of the significant design elements worked out now. The results of the engines performance have actually been better than we even thought or modeled when we entered this program. So we are actually quite excited about the product. The big increase in R&D this year, we will peak out our spending for OP2.0 development this year, because we have to do endurance testing of the initial design and we are so excited about it, we are actually going to begin development of a spark ignited gas engine as well that will happen in parallel, of course we won’t see any of the benefits from OP2.0 until the beginning – or until 2018 at the earliest. So this is the peak year of investment in R&D funding for OP2.0. They will – it will continue beyond this, but it will moderate somewhat in ‘18 and ‘19. And number one and obviously we will start to get some benefits from the sales of this new technology. But gosh, as we have shared this internally, we haven’t gone public yet with – in the industry with the actual results that we are seeing in the engine, but do sharing that with our internal team and our internal commercial group, we are just more excited now than we have ever been about the potential of this new and quite frankly, distinctive technology. But it is going to drive that peak in R&D spending in ‘17.

Great, thank you. My last question was on OP2.0, so you guys just already answered it. Thanks.

Okay, great.

[Operator Instructions] You have no questions in queue at this time. Chris O’Neal: Thank you, Virgil and thank you all for joining us this morning. If you have any additional questions, please give me a call at 704-731-1527. Have a good day.

This concludes today’s conference call. You may now disconnect.