Greetings. Welcome to EnPro Industries, Incorporated Q2 2020 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Chris O'Neal, Senior Vice President, Strategy, Corporate Development and Investor Relations. You may begin..

Good morning, and welcome to EnPro's quarterly earnings conference call. I remind you that our call is also being webcast at enproindustries.com, where you can find the presentation that accompanies the call. With me today are Marvin Riley, our CEO; and Milt Childress, our CFO.

Due to the COVID-19 pandemic, we are holding our call virtually to observe social distancing. We're dialed in from different locations, so we ask for your understanding if we encounter any technical issues and as we coordinate our responses during Q&A.

But before we begin our discussion, a friendly reminder that we will be making statements on this call that are not historical facts and that are considered forward-looking in nature.

These statements involve a number of risks and uncertainties, including impacts from the COVID-19 pandemic and related governmental responses and their impact on the general economy; as well as other risks and uncertainties that are described in our filings with the SEC, including our most recent Form 10-K and Form 10-Q.

We do not undertake to update any of these forward-looking statements. Also, during the call, we will reference a number of non-GAAP financial measures. Tables reconciling these measures to the comparable GAAP measures are included in the appendix to the presentation materials.

I also want to remind you that as a result of the sale of Fairbanks Morse in January 2020, the Power Systems segment is accounted for as a discontinued operation in our financial statements for both current and historical periods. Unless otherwise noted, all of our comments today will refer to continuing operations.

Additionally, in the second quarter of 2020, we moved the oil and gas component of our Garlock Pipeline Technologies, or GPT, business from the Sealing Products segment to the Engineered Products segment. This move allowed us to group our two largest oil and gas businesses, GPT and CPI, together so that they can be managed as 1 business unit.

Prior year segment level results have been restated to reflect this change for all periods presented. We have also provided a supplemental table at the end of the press release, with restated quarterly segment results reflecting this change going back to 2019. And now I'll turn the call over to Marvin..

Thanks, Chris. And good morning, everyone. Thank you for joining us. I hope that you and your families are safe and healthy. 2020 has been a very unpredictable year as we continue to battle the COVID-19 pandemic.

As we navigate through these unprecedented times, our top priority remains the health and safety of our global employees, their families, our communities, customers and suppliers.

I want to express my sincere gratitude to the heroes who continue to battle the COVID-19 pandemic, the health care professionals, emergency responders, grocery store employees, government officials and our EnPro colleagues working on the front line in our factories around the world.

I'm very proud of the way our teams have continued to excel in delivering quality products and solutions to our customers, while adopting enhanced safety practices throughout the organization and keeping our core values at the heart of their actions.

Before I begin my remarks on the quarter, I want to emphasize EnPro's core values of Safety, Excellence and Respect for all people. We hold dearly the sanctity of all human life and each person's inherent and equal right to grow and develop into the best and truest expression of themselves and start contrast to our enduring values and purpose.

There's an acute and systemic racism against black people in the world today. This racism and discrimination of any type violates our values and what we stand for as a company. On June 5, our executive team and Board of Directors issued a statement that shared our company's commitment to being part of an enduring solution.

If interested, you can read our EnPro Standing Together letter by using the link posted on the homepage of our website or the link in today's press release.

Over the last year, we've taken several concrete actions to further these values that we hold so strongly, including increasing the diversity of our leadership team, creating a diversity and inclusion leadership position; implementing bias training, leveraging our internal leadership programs to provide a forum for small groups to talk openly about biases, belief systems and different perspectives; providing enhanced mental and emotional health resources and establishing an internal charitable foundation to support ongoing education, equality and diversity.

We stand in solidarity with the African-American community, persons of color across the globe, our employees, our customers, our friends and our families. We stand together to create real and sustainable change starting right here at EnPro. As we begin our discussion on our second quarter highlights, I'd like to start by discussing four key themes.

First, I am pleased to share that despite the impact of COVID-19 and weaker year-over-year conditions across most of our markets, our Q2 adjusted EBITDA margin held up extremely well, contracting approximately 30 basis points to 15.2%, with adjusted EBITDA of $37.5 million.

When the pandemic emerged, we acted quickly to develop rigorous cost management plans to navigate this new landscape, and we are seeing the benefits of these savings on our bottom line. Second, we continued to optimize our portfolio.

We announced the final steps in reshaping our heavy-duty truck business, which, upon completion, will significantly reduce our revenue exposure to the commercial vehicle and heavy-duty truck markets, while increasing adjusted EBITDA margins in that business.

This is evidence of our portfolio evolution towards a more durable business in higher-growth markets that generate higher margins and cash flow. Third, I have commented before that we have a clear strategy, a cycle-tested and dedicated leadership team and a talented workforce.

These elements have enabled us to adapt and act with agility in the changing economic environment. And finally, we continued to focus on preserving capital. We have a very strong balance sheet, fortified by cash proceeds from the recent Fairbanks Morse divestiture, which closed in January.

Our net debt-to-adjusted EBITDA ratio was 0.4 times at the end of the second quarter, with $424 million in cash, a largely untapped revolver and a relentless focus on cash generation. We feel good about our financial position. We're poised to emerge from this economic downturn with the flexibility to take advantage of opportunities as they arise.

Turning to slide 5. I'd like to take a few moments to provide an update on our 4-phase approach to navigating the COVID-19 pandemic. To level set, I'll start with a quick summary.

Phase 1 focused on health and safety; while Phase 2 centers on business stability and progression, including running our business in adverse conditions, calibrating the business to new demand levels, managing liquidity and being responsive to our customer needs.

Phase 3 encompasses cost and process improvements based on our learnings from the previous phases, and Phase 4 is the post-pandemic period. We will be well positioned to capture growth as markets recover.

During our first quarter earnings call, I discussed in detail the steps we took during Phase 1, and today, I'll delve deeper into phases 2 and 3, which we entered into during the second quarter. The second phase of our response involves a keen focus on business stability and progression.

Leading up to and during the second quarter, we plan for several contingency scenarios of increasing severity. We took decisive informed action to prevent the spread of COVID-19, while ensuring business continuity and success in any environment. Each of our businesses enacted initiatives in line with their playbooks to adjust to new demand levels.

While we took specific actions to address immediate needs, we also emphasize creating lasting changes that will fortify our business for the future by focusing on permanent structural changes rather than just short-term actions. For example, we reduced our cost structure by exiting and consolidating sites where possible.

In total, we enacted cost reductions resulting in full year 2020 savings of approximately $30 million, of which we estimate, half will be sustained annual savings moving forward. These changes will result in higher profitability and will position us well when the environment improves.

From a supply chain perspective, we maintained our focus on risk mitigation. Due to the diligent efforts of our supply chain leadership council, we have not experienced any material supply chain issues this year.

We're utilizing best practice proprietary tools and techniques developed by our teams to understand operational status and are communicating regularly with our suppliers. Our supply chain organization is a notable strength during these challenging times.

We have started to enter our third phase, which involves monitoring and improving the processes, procedures and new ways of working that have emerged from the first 2 phases.

Early on, we re-imagined how our manufacturing teams conduct their work, implementing manual tracing at each of our facilities, along with temperature checks and additional PPE requirements. To date, we have had only 32 known infections out of approximately 5,000 employees worldwide.

Now we're taking our safety protocols a step further and are in the process of implementing testing for all plant employees and contact tracing technology across our US manufacturing footprint. This technology is currently being tested in one facility and following pilot success, will be rapidly rolled out to the rest of our plans.

While we cannot fully control the number of cases we may see, we can apply new tools, processes and technology to increase our employee safety while they deliver on our customer needs. Another initiative we're in the process of developing is called Working Together From Anywhere.

Our teams have rapidly and effectively adopted new technologies that have achieved similar or better results than with the manner in which we were working before the pandemic.

While we acknowledge that our sales and M&A teams will be required to travel to conduct specific aspects of their business, we do not anticipate that our company's overall travel will return to pre-COVID-19 levels.

Through this initiative, we're confident that we will develop solutions to enable our employees to thrive in the new environment, while also maintaining a lower expense base related to these activities. Moving now to our fourth and last phase.

Once market conditions return to a state of relative normalcy, we expect improved financial characteristics across our businesses as a result of the structural actions we've taken, including improvements in our cost base, productivity and supply chain.

While demand continues to remain soft across several core businesses, we're focused on controlling what we can and executing our profitable growth strategy. Now let me spend a few moments discussing our strategy and actions taken this corner - this quarter to reposition EnPro.

Our strategy is focused on three areas, first, reshaping our portfolio to include businesses focused on material science with compelling margins, leading technologies and strong cash flow in markets with favorable secular trends. Second, increasing our aftermarket exposure and driving greater recurring revenues.

And third, maintaining a balanced, disciplined approach to capital allocation, while leveraging the EnPro operating system to increase margins and cash flow return on investment.

As evidenced by our portfolio moves over the past year, including those announced over the past several months, we're taking proactive and aggressive actions to successfully position our company for the future. Let me briefly summarize the actions we've taken so far. First is the divestiture of our Fairbanks Morse division.

In January, we completed the $415 million sale of Fairbanks Morse, which constituted the Power Systems segment.

After careful review, we have determined, Fairbanks Morse was no longer a strategic fit, while a great business to sale, which was completed at an attractive valuation, contributed to our goal of owning businesses with high cash flow return on investment that are based on our core competency of material science.

Second, in our Sealing Products segment, we conducted an extensive review to identify businesses and product lines that are no longer aligned with our long-term strategy. As a result, we exited or divested several businesses while reducing our exposure to heavy-duty truck.

These actions include the recently announced agreement to sell our Air Springs business and our announced plans to exit brake products. With the announcement of the Air Springs transaction, we have now addressed all the portfolio reshaping actions in our trucking business.

And we expect to complete this reshaping work in line with our previously communicated time frame of year end. These steps refocus STEMCO's resources on its higher-margin wheel-end business, which is aligned with our strategy to shift the EnPro portfolio to markets and products that offer the most value to our customers and our shareholders.

With these exits, we anticipate that going forward, our annual sales to the heavy-duty truck market will be in the range of approximately $125 million to $175 million. These actions significantly reduced portfolio cyclicality and increased our exposure to resilient technology-oriented recurring revenue businesses.

Further, these efforts will increase our adjusted EBITDA margins and cash flow return on investment. Finally, we made two strategic acquisitions in 2019, LeanTeq and the Aseptic Group, which expanded our reach into the attractive semiconductor aftermarket, pharmaceutical and biopharmaceutical industries.

Both companies have strong competitive positions in high-growth markets, excellent margins, compelling cash flow and strong secular trends supporting long-term growth. These acquisitions align with our growth strategy due to their technical expertise, niche market leadership, mission-critical applications and significant aftermarket contributions.

Both businesses are performing in line with expectations and showing resiliency through the cycle with solid order intake and backlog. It is important to note that with the executed and announced portfolio-reshaping moves, we will have a more attractive portfolio with semiconductor as our largest end market.

We're committed to continuing to seek organic and inorganic growth opportunities in faster growing, higher-margin advanced technology spaces. Third, let's look at our Engineered Products segment. In this segment, we're focused on increasing margins and asset efficiency while optimizing our cost structure.

In support of this work, on June 18, we announced plans to exit operations at GGB's bushing block manufacturing facility headquartered in Dieuze, France, which will refocus the business on higher-margin product lines.

Overall, the actions taken over the past year demonstrate our commitment to proactive portfolio management and strengthening the durability of our business. Before turning the call over to Milt, I want to touch briefly on M&A. Our growth strategy is focused on organic initiatives as well as strategic M&A.

We remain focused on identifying opportunities that align with our strategy. We have built a strong M&A practice at EnPro and have a seasoned team overseeing this effort from sourcing and purchasing, to integrating and optimizing businesses.

While deal volume decreased substantially during the first half of the year, we have seen increased activity over the past several weeks.

We are diligently cultivating and reinforcing strong relationships with key advisers and owners of target businesses as well as briefing key contacts on our strategy and acquisition criteria so that we will be well positioned as an acquirer of choice. We're being patient and will remain disciplined while actively pursuing attractive opportunities.

And now I will turn the call over to Milt for additional discussion on our second quarter results.

Milt?.

Thank you, Marvin, and good morning, everyone. In the second quarter, sales decreased 22.1% to $247 million, coming in better than our expectations at the onset of the COVID-19 pandemic.

We experienced growth in our semiconductor and food and pharma businesses, including the contribution from the LeanTeq and Aseptic Group businesses acquired in 2019, while seeing declines across our heavy-duty truck, general industrial, automotive, aerospace, oil and gas and petrochemical markets as the COVID-19 impacts ripple through the global economy.

Excluding the impact of foreign exchange translation and sales from acquired and divested businesses, organic sales for the quarter declined 23.6% year-over-year. Gross profit margin for the first quarter was 33.4%, down 80 basis points.

The decrease was driven by sales volume declines across our businesses and $5 million in inventory write-downs related to the recently announced heavy-duty truck exits, offset in part by acquisition contributions and company-wide cost-reduction programs.

Adjusted EBITDA margin held up well, contracting about 30 basis points to 15.2%, with adjusted EBITDA of $37.5 million. The largest factor driving the decline was decreased demand in markets noted previously. This decline was mostly offset by prior year acquisitions and divestiture actions and cost reductions across the company.

Excluding the impact of foreign exchange translation, acquisitions and divestitures, decremental year-over-year adjusted EBITDA margins were approximately 30% in the second quarter, which is significantly below the weighted average contribution margin for the company.

This result was achieved largely through executing on cost management actions developed as part of our scenario planning work in response to the COVID-19 pandemic. As Marvin noted, we enacted cost reductions resulting in full year 2020 savings of approximately $30 million, of which we estimate half will be sustainable annual savings moving forward.

Adjusted diluted earnings per share decreased 42% to $0.54 per share, primarily driven by weak demand in many of our served markets. During the second quarter, we recorded total restructuring and impairment charges of $17.5 million. The charges include $13.2 million related to the exit of the remaining part of our Brake Products business.

As Marvin mentioned, earlier in June, we announced our plan to exit GGB's bushing block business, which is headquartered in Dieuze, France. The timing of the exit from this business is dependent upon ongoing discussions with customers regarding their future needs.

Future restructuring charges are anticipated to include contract termination and other costs, in addition to employee severance and benefits.

Given the uncertainties regarding the outcome of these discussions, we do not yet have an estimate for the expected restructuring charges and no restructuring charges related to the exit from the bushing block business are included in our results for the second quarter.

Also, as required under French Law, we are simultaneously pursuing a sale of this business. We anticipate that any sale would involve a cash payment by us to the buyer, and we can't provide any assurance that we could affect a sale on terms more favorable to us in exiting this business. Turning to segment performance.

While we experienced growth in the food and pharma and semiconductor markets, sales in Sealing Products decreased 17.9% versus the prior year period due to decreased demand in the heavy-duty truck, aerospace, general industrial and oil and gas markets.

Results were also impacted by unfavorable foreign exchange translation, the exit during the fourth quarter of 2019 of operations of 3 underperforming product lines and the divestiture of the brake shoe business in the third quarter of 2019.

Excluding the impact of acquisitions, divestitures and the foreign exchange translation, second quarter sales decreased 20.2%.

Despite the sales decline, segment adjusted EBITDA margins expanded 360 basis points to 21.9%, and total adjusted EBITDA declined only 2.1% compared to the prior year, primarily as a result of the contribution of acquisitions, cost management actions and more favorable mix in heavy-duty trucking, resulting from the reshaping moves that Marvin discussed.

Excluding the impact of foreign exchange translation, the 2 acquisitions and the divestiture of the brake shoe business, segment adjusted EBITDA margin contracted only 40 basis points compared to last year to 19.5%.

Sales in Engineered Products decreased 32.9% year-over-year, primarily due to weakness across most served markets, including automotive, general industrial, oil and gas and petrochemical.

The lower sales volumes resulted in a second quarter segment adjusted EBITDA decline of 68.8% and a second quarter segment adjusted EBITDA margin decline from 18% a year ago to 8.4%.

Excluding the impact of foreign exchange translation, year-over-year decremental adjusted EBITDA margins of approximately 40% were significantly less than decrementals in past recessions, resulting from cost management actions taken by the segment teams. Now let's turn to our financial position.

Our balance sheet is very strong, bolstered by the gross proceeds from the $450 million sale of Fairbanks Morse.

Additionally, the sale of our heavy-duty truck Air Springs manufacturing business announced yesterday is expected to generate gross transaction proceeds of approximately $32 million, plus a long-term promissory note with a face value of $7.5 million, subject to closing adjustments.

From a debt maturity standpoint, we're also in an attractive position with our revolver and term loan maturing in 2024 and our senior notes maturing in 2026, subject to applicable reinvestment requirements related to the Fairbanks Morse and other divestitures.

We ended the quarter with cash of $424 million and full availability of our $400 million revolver, less $13 million and outstanding letters of credit, does not include estimated taxes of approximately $50 million to be paid in the second half of the year, much of which is driven by the gain on sale of Fairbanks Morse.

Free cash flow in the quarter was flat year-over-year at approximately $29 million. As a reminder, we suspended our share repurchase program in response to COVID-19, and this suspension remains in place. Our dividend policy remains unchanged. And during the second quarter, we paid a $0.26 per share quarterly dividend totaling $5.3 million.

We continue to prioritize maintaining a strong cash position throughout the year while successfully positioning our company for the economic recovery.

Balancing the short-term focus on cash preservation with our long-term strategy of profitable growth, we expect overall capital spending to be at or below 2019 levels, and we plan to continue to invest in strategic growth opportunities, as Marvin described earlier.

In May, on our first quarter conference call, we provided color on how we were thinking about the year. I'd like to spend a few moments updating you on our latest thinking, recognizing there is continued uncertainty regarding COVID-19 and the challenging economic environment.

In our Sealing Products segment, our largest served markets are semiconductor, general industrial and trucking. In the semiconductor market, backlog remained strong versus prior year levels, and we anticipate demand to be solid in the second half of the year, in addition to a year-over-year acquisition benefit in the third quarter.

We anticipate continued weakness in general industrial and trucking through the end of the year compared to prior year. In Engineered Products, our primary market exposures are automotive, general industrial, oil and gas and petrochemical.

We anticipate that the significant impact of the COVID-19 pandemic that we have seen in the first half of 2020 will moderate in the second half of the year. We have revised our scenario planning ranges based on our strong second quarter results.

We continue to model a 15% to 25% full year revenue decline compared to 2019, including the impact of our portfolio-shaping actions. Should revenues decline in this range, we now expect adjusted EBITDA margins may range from 13% to 14% for the year, depending on the sales decline and product mix.

This compares to our prior scenario planning range of 11% to 13%. As a reminder, we typically see softer demand in the third quarter due to seasonal patterns. And specific to this year, we are expecting longer lead time orders to also affect the third quarter. We anticipate a modest sequential improvement in the fourth quarter.

Importantly, we expect to generate positive free cash flow for the year, excluding taxes related to the sale of Fairbanks Morse, even in our downside case, as a result of expense actions across our businesses, disciplined capital spending and aggressive working capital management.

As a reminder, there are many uncertainties surrounding how the COVID-19 crisis will impact demand and revenue. Our comments on market trends, revenues and adjusted EBITDA margins are intended to provide transparency on how we are thinking about the business. Now I'll turn the call back to Marvin for closing comments..

Thanks, Milt. In closing, as I reflect on my first year as CEO, we've made significant strides in improving the quality of our portfolio and execution and in building upon the cultural foundation established by my predecessor and mentor, Steve Macadam.

We've exited or divested businesses that were no longer a strategic fit and acquired those that align with our long-term vision for EnPro. We have focused on driving operational excellence by leveraging the EnPro operating system to reduce costs and improve productivity and quality control across all our businesses.

We have developed new ways of working as we navigate through the COVID-19 environment while protecting the health and safety of our employees and delivering the high level of service that EnPro customers expect.

We're standing behind our company's commitment to equality and standing up against any form of discrimination that exists in our society today. It's been quite a busy year. And while we have made great progress, we're only just beginning.

Looking forward, I'm confident that we will emerge from the current environment as a stronger organization with many opportunities on the horizon.

Our success will be fueled by the commitment of our cycle-tested leadership team, strong financial position, portfolio transformation work completed and operational improvements we continue to make throughout the organization.

I invite you to join me and our approximately 5,000 global employees on this journey to push boundaries in advanced industries while maintaining a diligent focus on capturing above-market growth, expanding margins and driving cash flow return on investment to maximize shareholder value. And now we'll open the line for questions..

[Operator Instructions] And our first question is from Joe Mondillo with Sidoti & Company. Please proceed with your question..

Hi. Good morning, guys..

Good morning, Joe..

Good morning, Joe..

I just first wanted to start with the guidance.

And I was just hoping, just given all the divestitures and product that fits, if you could help translate what that 15% to 25% decline is in absolute dollars? And then also, what is that 15% to 25% look like on a organic basis?.

Yeah. Joe, good morning I hope you're doing - you and your family are doing well. Our sales, our reference, the 15% to 25% down, is in reference to 2019. So our 2019 actuals were about $1.2 billion. So 15% down would be roughly $200 million. Now 25% down would obviously be more.

So you can do the math on that, but it is -- it's directly in reference to our 2019 actual revenues from continuing ops. So hopefully, that helps. That was the first part of your question.

Now if you look at our performance organically was your question, how did we perform for the quarter, year-to-date on an organic basis from both the sale as well as EBITDA standpoint?.

No, I think - correct me if I'm wrong, but the 15% to 25% includes some divestitures that you just have made this year and exiting products.

And I'm wondering, excluding exiting those revenue streams, what does the 15% to 25% look like on an organic basis?.

Yeah. Let me give you some data so you'll know. Let's just take the first 6 months of the year because it's a little bit of a target keeps moving, depending on the time period we're talking about. So let me help you with some information on here to date.

So this would be in the first half of the year, we had revenues from acquisitions of roughly $13 million. And then in the Rome business that we divested at the end of 2018, '19 - excuse me, at the end of '19, was about $8 million. So the net of those two, it wasn't a big difference. If you net out those two for the - excuse me, that's for the quarter.

For the first half of the year, it's $24 million from acquisitions, net of about $15 million of Rome. So it's only about a $9 million impact in the first half of the year. And then the EBITDA impact is - on a net basis, was - for the first half of the year, probably a net of about an $8 million favorable.

So that will give you some impact for the first half of this year of the impact of sales and earnings to help you estimate that for the - impact for the first half of the year..

Okay.

So would you say the 15% to 25% is almost - it's not going to fluctuate a ton when you net out all of these acquisitions and divestitures? And I mean, just even the Air Spring business that you just announced that you just divested it, would you say the net numbers, plus or minus 1 point or 2 from that 15% to 25%, it sounds like?.

Well, if you - let's - again, if you look at the second half of the year, in addition to what I just covered, we will have the exit from the Air Springs business, let's say, after regulatory approvals and we get to closing. That happens, let's just say, by the end of the third quarter, just as an estimate.

And if that happens in the fourth quarter of the year, yes, we would likely have some falloff. In the first half of the year - let's say, in the second quarter of the year, we had Air Springs revenue of about $15 million. So that will help you size roughly what an impact might be if that transaction closes at the end of the third quarter.

The 15% to 25% modeling that we're using does assume that we no longer have the Air Springs business in the fourth quarter. That also assumes that the previously announced exit from Motor Wheel happens so that we - that revenue drops off in the fourth quarter of the year.

And that revenue, by the way, was also around $15 million in the second quarter of this year. So those two businesses combined in the fourth quarter, the way we're doing our scenario planning to reflect about a $30 million drop-off in the fourth quarter resulting from those two moves..

Okay. That's helpful. As far as the Sealing segment, flat operating income despite a 20% decline in revenue. Is this mainly the - I mean, I assume a big portion of that is the cost cuts that you initiated in the quarter.

Could you just talk about that kind of performance despite the 20% decline in revenue? And how we can look at, I guess, the segment going forward?.

Yes, it's really a function of two things, Joe. It's certainly a function of the cost efforts and the restructuring actions that we've taken during the quarter. It also reflects the benefit of the acquisitions in 2019 of Aseptic and LeanTeq.

So - and thirdly, it reflects the positive impact of the divestiture of Rome that happened at the end of last year because that business had been losing money. So it's really a function of all three of those things..

Got it. And just in general, not just feeling, but in general, in terms of the cost cuts, you mentioned $30 million total, half of which is going to be permanent. A couple of things there, and then I'll hand it off to someone else.

Are any temporary costs coming back, say, immediately in the third quarter regardless of revenue? I'm just curious because some companies have operated differently than others, where you're seeing a big chunk of, I don't know if it's furloughs or other temporary costs that come back, no matter what revenue does in the third quarter.

So that's number one.

And number two, as far as the permanent cost cuts, have - did we see most of those annualized benefits in the second quarter? Or should that be a progression of benefit into the second half?.

Yeah, it's a good question, Joe. Some of the costs, the benefits from the cost actions, we will see more fully in the third quarter and some in the fourth quarter. The numbers that we've provided, obviously, were annual numbers. And so let me tell you how we approached the cost savings.

We were looking - the numbers that we provided on the call, the roughly $30 million and indicating that about half of that would be sustainable in the future, those are costs that we've identified as being non-volume related.

And the reason that not all of those are sustainable, let's say, in a different environment is because some expenses we would not anticipate to be as low under more normal conditions, T&E expense, for example.

While we don't expect that to go back to the levels that was pre-pandemic, we certainly expect T&E going forward to be greater than it was - has been this year and then we expect it will be for the full year of this year. So - but that includes supply chain savings. It includes labor cost savings. It includes other manufacturing costs. It includes SG&A.

So it's a lot of individual line items that make up the cost savings that we've been able to execute on this year..

Okay. It sounds like - go ahead..

Yes. I was just going to chime in at a high level. I mean, our posture is we want to maintain our cost savings for as long as possible. And if we are improving or increasing, T&E, for example, that's directly aligned to trying to grow sales, right? So if you look at our headcount reductions, they're in line with the demand drop off.

We see some increases. It's going to be in line with growing revenue. We're really trying to maintain a posture that is one of being very thoughtful on our - as it relates to spending, very thoughtful as it relates to the hard work we put in to get these cost savings. So our intention is not to give them right back..

Okay, perfect. Thanks a lot. Appreciate it..

[Operator Instructions] Our next question is from Jeff Hammond with KeyBanc Capital Market. Please proceed with your question..

Hey. Good morning, guys..

Hey, Jeff.

How are you doing?.

Good, good. Just on the 15%, I think last quarter, you said the 15% to 25% decline of bias was towards the worse end of that.

Just wondering if after 2Q results and kind of based on the incoming order rates, if you're still feeling that way? Or if anything's changed within that wide band?.

Well, I'll give you a sense of incoming order rates, and then we can go back to sort of the band. We feel comfortable about the band because we want to be thoughtful. We want to be mindful that we don't really understand exactly what will happen in the future. But from an order intake perspective, we feel really good about what's happening.

If you look at our trucking business, I'm going to get a little granular here just to give you a little bit more perspective. If you look at our heavy-duty trucking business, from an order's perspective, our orders troughed in April, and we've been recovering every month since.

Trailer builds, if you were to look at FTR is thinking about trailer builds being down about 40%. And Mackay is seeing the aftermarket being down about 18%. Our business is probably in line with the OE and performing a little better on the aftermarket side. And if you look at our trucking business, you know that 70% of that business is aftermarket.

So we would expect that to perform nicely going forward. In automotive, our orders troughed in April and have improved ever since. We actually had a really strong July, some of that fueled by increased orders from the Dieuze announcement. But even without that, we really had a strong recovery here in July.

If you look at our energy and sort of petro business, our orders troughed in May and has been essentially flat. Since then, no further degradation, which we like and with the cost savings that's worked out nicely. In general industrial, our business troughed in the May time frame and has improved nicely since.

And as you know, semiconductors performed really strong for us all throughout and continues to be strong, and we expect that to continue to be strong going forward through 2021. So we are maintaining our 15% to 25% range, just because that mix varies, but the indication across the board is that orders are improving.

I just wanted to give you that color..

Okay.

So it sounds like the bias is maybe no longer the lower end, just given the trend in order rates? Is that fair?.

I would say - go ahead, Milt..

Marvin, go ahead, and then I'll chime in..

Yeah. I would focus for me, it's a mix. I mean, the bias is it's going to be in that range. It's hard to give you a bias, quite frankly, but it's going to be in that range. It all depends on how things shake out. That's what I'd say. I'd like to stick to the range just to keep it safe. It's probably right in the middle. Go ahead, Milt..

The only thing I would say is just to go back to our results for the first half of the year. And you've got the data, but just to summarize it. If you look at our top line sales for the quarter, we were down 22% year-to-date because the pandemic wasn't fully felt. In the first quarter, we were down 15%. So 22% down in the second quarter.

That's kind of the environment that we're in currently, even with some modest improvement. So I think you look to our historical numbers, what's changed, maybe colored a little bit by some of the order pattern information that Marvin described. And I think you just see yourself kind of in that range, in that 15% to 25% range..

Okay.

The Air Springs business, can you give us like either '19 revenue and EBITDA or trailing 12 months revenue and EBITDA, what comes out on an annualized basis?.

Yes. Let's see, we can give you kind of a ballpark of how it will affect us. If you look at 2019, business - Jeff, I'm going to lump in both Air Springs and Motor Wheel together because they're both businesses that we're exiting. But in 2019, we had revenues of roughly $140 million, $145 million in those two businesses.

And the first half of this year, we've had roughly $65 million of revenues in those two businesses. If you look at EBITDA in 2019 in those two businesses, we had roughly $10 million of EBITDA. And then if you look at this year, those two businesses combined, probably first half of this year, probably about $3.5 million of EBITDA.

So that will give you information where you can estimate the overall impact that we'll have once we complete those exits..

Okay. And then final question. Marvin, you've cleaned a lot of the portfolio. And you've talked about the direction you want to go. I mean it looks like Engineered Products still, though, is at minimum - maybe differentiated, but still a very cyclical business, as we can see obviously, unique circumstances.

But very cyclical, pretty high decrementals, even with the better performance, just how do you think about the portfolio shaping, particularly Engineered Products?.

Yes. I mean, the best way to answer that is, Sealing is basically the way we like it. And as we think about our capital going forward, that's where we'll direct it, primarily because of its financial profile, the exposure to the end markets that we like and want to participate in, in the future. That's how I would think about it.

And as it relates to engineered, it's primarily around getting as much cost out as possible, improving the profitability and just running those operations as lean as we can going forward and making sort of some decisions down the road around whether or not they will achieve what we consider to be the hurdles necessary to participate in sort of the portfolio of the future.

That's how I would think about it..

Okay, great. Thanks, guys..

Yeah..

And we have reached the end of the question-and-answer session. And I will now turn the call over to Chris O'Neal for closing remarks..

Thank you, Shamali, and thank you all for joining us this morning. Have a great day..

And this concludes today's conference. And you may disconnect your lines at this time. Thank you for your participation..