Enpro's Q3 2025 Earnings Call: Contradictions Emerge on Nuclear Market Timing, AST's Growth, Tariffs, CapEx, and FX Headwinds

Date of Call: November 4, 2025

Financials Results

• Revenue: $286.6M, increased nearly 10% YOY
• EPS: $1.99 adjusted diluted EPS, increased more than 14% YOY
• Operating Margin: Adjusted EBITDA margin 24.2%, down slightly vs prior year

Guidance:

• Full-year 2025 revenue growth expected to be 7%–8%.
• Adjusted EBITDA expected $275M–$280M; adjusted diluted EPS $7.75–$8.05.
• Normalized tax rate 25%; fully diluted shares ~21.3M.
• Guidance includes partial Q4 contribution from AlpHa/Overlook (just under $10M revenue and ~ $3M EBITDA).
• Expect to exit 2025 at ~2.0x net leverage post-transactions.
• Sealing profitability expected at high end of ~30% (±250 bps); AST finishing slightly above 20%; total adjusted EBITDA margin >24%.
• Capital expenditures expected around $50M for 2025.

Business Commentary:

• Revenue and Segment Performance:
• Enpro reported organic sales growth of nearly 10% during the third quarter, with mid-single-digit revenue growth year-over-year in Sealing Technologies and more than 17% top-line growth at Advanced Surface Technologies (AST).

• Growth was driven by strong demand in aerospace and food and biopharma markets, along with strategic pricing initiatives in Sealing Technologies, and increased sales in leading-edge precision cleaning solutions and semiconductor tools in AST.

• Acquisitions and Strategic Investments:

• Enpro announced acquisitions of Overlook Industries and AlpHa Measurement Solutions, expected to contribute more than $60 million in revenue and $17 million to $18 million in adjusted EBITDA in 2026.
• These acquisitions aim to expand capabilities in critical growth areas without excess leverage, enhancing Enpro's technology portfolio and customer reach.

• Semiconductor Industry and Investment Impact:
• AST experienced adjusted segment EBITDA increase of more than 13%, despite unfavorable mix and increased operating expenses for growth initiatives in semiconductor capital equipment and precision cleaning solutions.

• The investment in advanced node capabilities is expected to position Enpro for future growth, although near-term demand dynamics remain choppy due to regional supply chain shifts.

• Operational Efficiency and Balance Sheet:

• Corporate expenses remained flat at $10.2 million compared to the prior year, with a net leverage ratio of 1.2x trailing 12-month adjusted EBITDA.
• Enpro generated $105 million in free cash flow year-to-date, with expectations to exit 2025 at a net leverage ratio of around 2x, reflecting strong cash generation and strategic capital allocation.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted nearly 10% organic sales growth, adjusted EBITDA margin above 24% and adjusted diluted EPS of $1.99 (up >14%). They raised FY25 guidance to the high end and announced acquisitions expected to add >$60M revenue and $17–18M adjusted EBITDA in 2026, signaling confidence in growth and strategic expansion.

Q&A:

• Question from Jeffrey Hammond (KeyBanc Capital Markets Inc., Research Division): 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?
  Response: Combined they are ~ $60M revenue in 2026, expected high-single to low-double-digit growth with margins similar to Sealing; Overlook brings single-use biopharma components and recurring revenue that fit Sealing's strategic playbook.

• Question from Jeffrey Hammond (KeyBanc Capital Markets Inc., Research Division): And then just real quick 4Q revenue contribution that you put into guidance from the acquisitions?
  Response: Included just under $10M of revenue and approximately $3M of EBITDA in Q4 guidance, depending on AlpHa closing timing.

• Question from Jeffrey Hammond (KeyBanc Capital Markets Inc., Research Division): Shifting gears to AST. 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?
  Response: AST incurred ~ $3M of growth-investment headwind this quarter; historical incrementals ~40%; the $12M was tools and assemblies (legacy platforms) pulled into 2025 to support regional transition to Asia.

• Question from Steve Ferazani (Sidoti & Company, LLC): When we think about the initial year 1 revs and margin guidance for the acquisitions, does that imply much effort in terms of integration, continuous improvement, cost out, synergies, etc.? Long term, how do you think about the margins in those 2 businesses versus Sealing overall?
  Response: No material margin expansion expected in the first full year; margins are already healthy and the priority is growth—Enpro playbook may deliver incremental improvements over time.

• Question from Steve Ferazani (Sidoti & Company, LLC): Talk to me how you view the compositional analysis market and whether that gets you more intrigued with M&A in that area?
  Response: Compositional analysis is a strategic growth area: AlpHa adds liquid sensing to AMI's gas analytes, expanding capabilities and customer value; management sees further M&A opportunities in the space.

• Question from Steve Ferazani (Sidoti & Company, LLC): Are you starting to think about CapEx for next year or are we too early? Will investments continue into 2026?
  Response: Not giving a 2026 number yet; expect to remain in roughly 3.5%–4.5% of sales range for CapEx for a couple of years to support organic growth.

• Question from Steve Ferazani (Sidoti & Company, LLC): Can you talk about your outlook now for nuclear and commercial space and how you're positioned in those markets?
  Response: Enpro is well positioned in nuclear and space; demonstrated ability to rapidly ramp production (example: new parts and production in 9 weeks) and will participate as those markets expand.

• Question from Ian Zaffino (Oppenheimer & Co. Inc., Research Division): On AST, what's the mix of leading-edge vs legacy, how has it changed versus a year ago, where do you see it going, and what margins could leading-edge vs non-leading-edge achieve?
  Response: Historically about 50/50 leading-edge vs legacy; mix is shifting toward advanced node exposure with leading-edge commanding higher margins; management targets sustainable segment EBITDA in the high-20s to low-30% range over time.

• Question from Ian Zaffino (Oppenheimer & Co. Inc., Research Division): On nuclear beyond France, where do you see pockets of future strength and does it matter if it's SMR versus larger reactors like AP1000 for Enpro?
  Response: Enpro supplies containment/seals for reactor pressure vessels and is well positioned across SMR and larger reactors; the company will grow with the market and doesn't see a need to change its approach—the main constraint is market timing.

Contradiction Point 1

Nuclear Market Timing and Demand

It involves differing explanations for the performance and demand in the nuclear market, which could impact Enpro's revenue and customer expectations.

What is your outlook for nuclear and commercial space markets given recent contributions? - Steve Ferazani (Sidoti & Company, LLC)

2025Q3: The nuclear timing issue is both due to a strong nuclear quarter last year with replacement cycles and a mix between quarters this year. Underlying demand is strong. - Eric A. Vaillancourt(CEO)

What caused the nuclear timing issue, given strong performance last year, replacement cycles, and quarterly mix, along with FX headwinds from a weakening USD impacting non-USD expenses and liabilities in AST? - Jeffrey David Hammond (KeyBanc Capital Markets Inc., Research Division)

2025Q2: Nuclear was strong, driven by replacement cycles in nuclear where timing of those cycles also created some mix between quarters. There is strong nuclear demand. - Eric A. Vaillancourt(CEO)

Contradiction Point 2

AST's Growth and Margins

It reflects differing views on the growth and margin expectations for the Advanced Solutions Technologies (AST) segment, which could influence strategic decision-making and investor expectations.

How does AST's advanced vs. legacy platforms impact growth and margins? - Ian Zaffino (Oppenheimer & Co. Inc.)

2025Q3: AST has historically been about 50-50 in leading-edge and legacy platforms. The mix has shifted toward advanced nodes, but legacy tools are causing some volatility. The focus remains on growing leading-edge margins while optimizing legacy offerings. - Joe Bruderek(CFO)

Are you still confident in mid-to-high single-digit AST growth? Are there any positive indicators on the capital equipment side? - Ian Zaffino (Oppenheimer)

2025Q1: We continue to expect mid to high single-digit growth in AST. OEM demand remains choppy, but our pipeline is strong, and we're seeing commercial wins. - Eric Vaillancourt(CEO)

Contradiction Point 3

Tariff Impact and Supply Chain Management

It highlights differing perspectives on the impact of tariffs and the company's ability to manage supply chain uncertainties, which could affect financial performance and investor confidence.

Are there initial synergies or cost-cutting efforts expected from the acquisitions? How do you assess the compositional analysis market? - Steve Ferazani (Sidoti & Company, LLC)

2025Q3: Our supply chain team has been excellent in managing tariffs and other macroeconomic uncertainties. We are very confident in our ability to navigate this environment and maintain our strong performance. - Joe Bruderek(CFO)

Can you quantify the impact of tariffs being minimal and manageable? Are there any pricing actions to offset that headwind? - Jeff Hammond (KeyBanc Capital Markets)

2025Q1: We say minimal and manageable because most of our products are in region for region. We import very little compared to others. Our supply chain is agile and capable of substituting products, such as bearings for trailer manufacturing, from Spain or India. Our North American exposure is minimal due to exemptions for Canada and Mexico. We have no supply chain disruptions and are confident in our performance. - Eric Vaillancourt(CEO)

Contradiction Point 4

CapEx Investment Strategy

It involves the company's approach to capital expenditures, which is critical for long-term growth and capital allocation.

What are the growth prospects for CapEx next year, and will CapEx investments continue into 2026? - Steve Ferazani (Sidoti & Company)

2025Q3: CapEx will likely remain at 3.5% to 4.5% of sales over the next few years. Enpro continues to identify organic growth areas for investment in both Sealing and AST. - Joe Bruderek(CFO)

How does tariff uncertainty affect the sealing business in Europe? - Steve Ferazani (Sidoti & Company)

2024Q4: Some projects that were scheduled late last year will start in 2025, and we're confident in our ability to execute on them. - Eric Vaillancourt(CEO)

Contradiction Point 5

AST's FX Headwinds and Currency Impact

It concerns the duration and impact of FX headwinds on AST's financial performance, which could affect investors' expectations regarding the company's financial outlook.

What is the expected Q4 revenue contribution from acquisitions, and when will AST show improved incrementals? - Jeffrey Hammond (KeyBanc Capital Markets)

2025Q3: FX headwinds were due to significant weakening of the U.S. dollar in Q2. We do not expect them to continue at the same magnitude. - Joseph F. Bruderek(CFO)

What are incremental margins in AST expected to be in the second half? Are the FX headwinds a one-time impact for the quarter or ongoing? - Jeffrey David Hammond (KeyBanc Capital Markets Inc., Research Division)

2025Q2: FX headwinds were due to significant weakening of the U.S. dollar in Q2. We do not expect them to continue at the same magnitude. - Joseph F. Bruderek(CFO)