EnPro Industries, Inc. Q4 FY2025 earnings call

• Since the launch of the EnPro three point zero strategy, the teams have made substantial progress in aligning the organization with long-term strategic goals. In 2025, organic growth was 7.6%, margins were held or expanded despite increases in operating expenses for growth initiatives, 2/3 of capital expenditures were directed towards growth and efficiency projects, and $280,000,000 was allocated for value-creating M&A. - Colleagues completed a minimum of 16 hours of training. In 2025, sales reached $1,140,000,000, a 9% increase, with organic sales growing by 7.6% driven by sectors such as aerospace, food and biopharma, firm domestic general industrial, and an improving semiconductor market. AST witnessed strength in solutions for leading-edge applications and a recovery in semiconductor capital equipment demand. The balance sheet remained strong with a net leverage ratio of 2 times, and over $150,000,000 of free cash flow was generated in 2025. The board approved an 11th consecutive annual dividend increase to $0.32 per share.

Sealing Technologies: Fourth quarter sales reached $187,100,000, marking nearly a 15% increase compared to the previous year. Organic sales saw a nearly 8% year-over-year rise. Adjusted segment EBITDA grew by more than 21%, and the adjusted segment EBITDA margin expanded by 180 basis points to 32.8%. In 2026, it is targeted to have mid single-digit organic growth with the adjusted segment EBITDA margin expected to exceed 30%. Advanced Surface Technologies (AST): Fourth quarter sales stood at $108,400,000, which is a 13.4% increase. Adjusted segment EBITDA increased by approximately 3% with the margin remaining above 20%. For 2026, AST is expected to have high single-digit sales growth, with the second half being stronger than the first half and an anticipated expansion in the adjusted segment EBITDA margin.

• Total sales growth for 2026 is expected to be in the range of 8%-12%, including approximately $60,000,000 from acquisitions made in 2025. - Adjusted EBITDA is projected to be between $350,000,000 and $320,000,000, including around $16,000,000 to $17,000,000 from recent acquisitions. - Adjusted diluted earnings per share is expected to be in the range of $8.50 to $9.20. - Capital expenditures in 2026 are anticipated to be around $50,000,000, which is approximately 4% of sales. - For Sealing Technologies, revenue growth is expected to approach 15% in 2026 with mid single-digit organic growth, and the adjusted segment EBITDA margin is expected to exceed 30%. - For AST, sales growth is expected to be in the high single digits, with the second half being stronger than the first half and an expansion in the adjusted segment EBITDA margin.

Q: Regarding AST, provide more color on first half and second half margins and order activity.

A: The second half is expected to be considerably stronger than the first half. The first half is likely to have low to mid single-digit growth, while growth will accelerate through the year with the second half showing material improvement. Order booking is getting stronger as the year progresses, and new platforms are set to contribute in the late second half.

Q: On short-cycle trends, nuclear choppiness, and industrial business.

A: Nuclear choppiness is expected to continue for a while, but the industrial business is very strong with a book-to-bill ratio higher than 100%. Commercial vehicle OEM is expected to be flat to slightly down, and Sealing Technologies is expected to outperform the market with mid single-digit growth.

Q: About the last couple of months of 2025 compared to the November guide in terms of top line and margins.

A: Sales ended up being at the higher end of the guide range, and margins were in line with expectations. Higher corporate expenses were due to factors like increasing medical costs and short-term incentive costs related to outperformance.

Q: On 2026 cash conversion and M&A focus.

A: Strong free cash flow conversion is expected, but there will be higher interest expense in 2026 due to revolver draws. M&A focus remains aggressive with a strong pipeline.

Q: On OpEx for qualification work and the performance of Sealing's addition of Alpha and Overlook.

A: OpEx is at a run rate, and the businesses of Alpha and Overlook have good backlogs and order rates, exceeding expectations and are expected to grow high single digits combined and be accretive to the Sealing Technologies segment