EnPro Industries, Inc. Q3 FY2025 earnings call

• Quarterly Performance: Enpro reported organic sales growth of nearly 10% in the third quarter, with mid-single-digit revenue growth in Sealing Technologies and over 17% growth at AST. Total Enpro adjusted EBITDA margin was above 24%. - Acquisitions: Overlook Industries was acquired on October 8, and AlpHa Measurement Solutions is expected to close in the fourth quarter of 2025. AlpHa complements AMI's gas stream solutions, and Overlook strengthens biopharma single-use technologies. - Enpro 3.0 Strategy: Proceeding as planned, targeting mid-single-digit growth in Sealing Technologies and high single-digit to low double-digit growth in AST. The programmatic M&A strategy is additive to organic growth perspectives

Sealing Technologies: Sales increased 5.7% to $178.2 million, with strength in aerospace, food and biopharma, and aftermarket demand in general industrial and commercial vehicle, offset by commercial vehicle OEM weakness and tepid industrial demand in Asia/Europe. Adjusted segment EBITDA margin remained above 32%. Revenue contribution: ~62.2% of total sales. Advanced Surface Technologies (AST): Third quarter sales of $108.5 million were up 17.3% year-over-year. Adjusted segment EBITDA increased more than 13% with an adjusted segment EBITDA margin of 20.1%. Revenue contribution: ~37.8% of total sales

• Updated full-year 2025 guidance: Total Enpro revenue growth expected to be 7%-8%, adjusted EBITDA in the range of $275 million to $280 million, and adjusted diluted earnings per share in the range of $7.75 to $8.05 per share. The acquisitions announced in October are expected to contribute over $60 million in revenue and $17 million to $18 million in adjusted EBITDA in 2026. - Sealing Technologies: Expected strong performance in the fourth quarter. - AST: Sequential deceleration in sales growth in the fourth quarter due to choppy semiconductor equipment spending and regional transitions, but signs of improved demand in the second half of 2026

• Political uncertainty in France impacting nuclear orders. - Choppy demand in semiconductor equipment spending and regional supply chain transitions affecting AST's performance

Q: Maybe start with acquisitions. I don't know if you can give us a sense of relative size of each. And I think you said margin and growth profiles are comparable, but just a little bit of breakdown. And then just on Overlook, it seems like a little bit of an adjacency. Just what gives you a right to win there? What do you see in terms of bolt-ons to kind of build scale around that business?

A: Yes. Jeff, yes, as you asked, right, the combined nature of both of them are about $60 million of revenue in 2026 and are expected to grow high single digit, low double digit over the next foreseeable future. So we're really excited about both acquisitions. They're both going to be combined accretive to Enpro's core. They're not too far from each other as far as profitability goes and growth rate expectations. And Eric can talk a little bit more about some of the capabilities they bring.

Q: Jeffrey Hammond: Okay. And then just real quick 4Q revenue contribution that you put into guidance from the acquisitions?

A: Yes. So depending on the final timing for AlpHa closing, which we expect should be by the end of November, we included just under $10 million in revenue for the fourth quarter from both acquisitions and approximately $3 million in EBITDA.

Q: Jeffrey Hammond: Okay. Great. And then shifting gears to ASTI. You guys gave a lot of color around some of the moving pieces. But I guess my main question is when do we start to see better incrementals in that business and some of the investments start to normalize? And then just where is that $12 million, is that cleaning? Is that tools and assembly or something else?

A: I'll start and give just a little bit of color because things are really dynamic in that industry. You have 3 major things happening, one being tariffs, 2 being AI and data center demand and then third being export restrictions. So everything is really dynamic and things are moving around very, very quickly. So some of the things that are happening, and you can read the paper as well as we do, but the adoption of 3-nanometer production in the U.S. is being greatly accelerated as much as a year ahead of plan. So at the same time, things that we were expecting to generate revenue this year are being pushed off in terms of qualification because they're prioritizing other things. So we're not getting the revenue from some of the stuff that was anticipated while also spending more on others. But both are great projects and you want us to do it. It's just a question of when demand starts happening. And as you've heard from others as well, the first half of next year appears to be pretty choppy, but the second half looks to be more robust, and we can start to see some of that rolling in around there.

Q: Steve Ferazani: I did want to follow up on the acquisitions. When we think about the initial year 1 revs and margin guidance, does that imply much efforts in terms of your usual integration process, continuous improvement, cost out, synergies, et cetera? I mean, long term, how do you think about the margins in those 2 businesses versus Sealing overall?

A: Margins of the businesses are healthy already. We expect we'll be able to get a little bit out of our playbook as we always do. And so we'll be a little bit more efficient, but there aren't a huge amount of synergies. It's more about growth. When we focus on Enpro 3.0, it's accelerating personal profitable growth, and these are growth investments, will help the segment grow faster essentially with margin profile that will be about the same as Sealing overall.

Q: Steve Ferazani: Talk to me how you view the compositional analysis market. You made that AMI deal was going now back maybe 2 years, how that's played out and whether that gets you more intrigued with compositional analysis and what the opportunities are in that market?

A: Mike, why don't you weigh in again since you've identified the space and spent a lot of time there.

Q: Ian Zaffino: On -- I just kind of want to understand AST a little bit better here. Can you maybe tell us what the mix of leading edge is? And where is it currently versus, let's just say, a year ago as far as maybe the growth rates? Where do you actually see it eventually going? And when you look at the margins of each, I guess, call it, at ramp or at maturity or whatever word you kind of choose to use, what do you think margins could be on leading edge versus non-leading edge?

A: Yes. Good question. I think historically, we've been about 50-50 when you think leading edge and legacy platforms. Obviously, the legacy side of that is where you've seen the most depression of capital equipment spending over the last few years. At the same time, our Precision Cleaning business has been growing nicely, and we continue to make inroads both in Taiwan and qualification work on new leading-edge nodes as well as ramping up manufacturing in both Taiwan and in our Milpitas, California facility. So now we're a little bit leaned towards advanced node exposure overall. Although recently, the last couple of quarters for some of the supply chain transitions I talked about, but even so you're starting to see a little bit of increased semiconductor tools and assembly, that's eating into that a little bit. There is a differentiated amount of margin. So what we're now seeing is leading edge as that continues to grow, right? That mix is us up a little bit, but it is currently being offset by the semiconductor legacy tools and equipment that's been stronger in the last 2 quarters, right, which is still very choppy. I mean we've seen demand kind of choppy for the last few quarters. We expect that in 4Q. We expect that at least through the first half of next year. As I mentioned before, there are signs and signals of a much stronger WFE picture for the second half of next year. And then longer term, as we talked about, right, this segment has the ability to demonstrate sustainably high 20%, low 30% EBITDA margins, right? And we're focused on the actions necessary to do that. It will be some of that WFE-related capital equipment spending driving a more sustained growth of that part of the segment. There will be continued growth in Precision Cleaning that helps us get there as well as our continuous improvement initiatives and strategic pricing and all the rest of our playbook.

Q: Ian Zaffino: Okay. And then on nuclear, how are we thinking about the non-French business where are you kind of seeing maybe potential pockets of strength or of future strength? And I guess what I'm asking is you mentioned data centers, nuclear is kind of -- they've been floating around things like small modular reactors. I know there's talk about an AP1000 coming online. Maybe talk about your view of that market in general? And where would you be on that value chain and where would you be as a player in that space?

A: We're excited about the market as it develops. Of course, it's still a ways away. When it comes, we're very well positioned to participate. Of course, as you know, we seal the reactor pressure vessels in the plants, and we'll continue to do that. We work with all the leading companies that do that work. And I just say we're well positioned as soon as it takes off. But there isn't anything that we need to do differently. We just need the market to develop and we'll develop along with it.