EnPro Industries, Inc. Stock

Greetings, and welcome to the Enpro Second Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the call over to your host, Mr. James Gentile, Vice President, Investor Relations. Thank you. You may begin.

Thanks, Melissa, and good morning, everyone. Thank you for joining us today as we review Enpro's second quarter 2026 earnings results and discuss our increased outlook for 2026. I will remind you that this conference call is being webcast at enpro.com, where you can find the presentation that accompanies this call. With me today is Eric Vaillancourt, our President and Chief Executive Officer; and Joe Bruderek, Executive Vice President and Chief Financial Officer.

During this morning's call, we will reference a number of non-GAAP financial measures. Tables reconciling the historical non-GAAP measures to the comparable GAAP measures are included in the appendix to the presentation materials. Also a friendly reminder that we will be making statements on this call, including our current perspectives for full year 2026 guidance that are not historical facts and that are considered forward-looking in nature.

These statements involve a number of risks and uncertainties, including those described in our filings with the SEC. We do not undertake any obligation to update these forward-looking statements. It is now my pleasure to turn the call over to Eric Vaillancourt, our President and Chief Executive Officer. Eric?

Thanks, James, and good morning, everyone. Thank you for your interest in Enpro as we discuss our strong second quarter results, provide an update on strategic initiatives and share our current views for the balance of 2026. Before I review our results, I'd like to recognize our colleagues across the company who are accelerating their personal and professional growth Enpro 3.0.

The individual growth aspect of Enpro 3.0 is not a side program. It is half of the strategy itself. Earlier this year, our colleagues set bold goals that range from deepening subject matter expertise to expanding leadership capabilities, achieving personal health, fitness or academic gains. Through accountability, hard work, encouragement and feedback, our colleagues are achieving meaningful growth. In recent years, the energy spreading throughout the organization around empowerment with purpose is motivating. It shows in our financial results as well as the personal performance of our colleagues.

I'm grateful for their hard work and dedication to their communities and loved ones. Enpro is built around highly engineered products and solutions that play a vital role in customers' mission-critical platforms across a number of key end markets supported by long-term tailwinds. Our products are integral components found in leading-edge applications such as advanced semiconductor production, customized biopharmaceutical processes, space exploration and satellite communications and sensing and instrumentation of critical gas and liquid paths.

We also provide a variety of safety and contamination control capabilities that support the commercial transportation of goods across North America as well as enduring specification positions in a number of critical industrial process applications. We win with our strong technical capabilities, engineering, process knowledge and specialized small batch manufacturing footprint.

We partner with our customers to develop innovative solutions and to continue to invest in new products and expand our technical capabilities as well as pursuing targeted capacity expansions and efficiency projects across the company that will drive strong organic growth, profitability and compelling returns over the long term. We are pleased with our strong first half results and improved outlook for the rest of the year as our products continue to help our customers solve critical problems and operate safely, reliably and efficiently.

Now on to the highlights for the second quarter. Enpro reported strong second quarter sales up 17.6% year-over-year. Strong demand across semiconductor markets drove sales in the Advanced Surface Technologies segment up 21.8%. Sealing Technologies grew 15.3% overall and 5% organically. Total company adjusted EBITDA increased more than 22% to $86.9 million at a margin of 25.6% for the second quarter. In Sealing Technologies, revenue growth of over 15% was largely driven by contributions from the acquisitions of AlpHa Measurement Solutions and Overlook Industries as well as solid organic growth, including double-digit growth in general industrial markets domestically and strong performance in aerospace markets.

Commercial vehicle markets remained soft in the second quarter, although we are seeing early signs of stabilization and improvement. We are pleased with how our commercial vehicle business is positioned ahead of the eventual recovery in trailer demand. We also saw softness in Europe in our smaller general industrial and food and biopharmaceutical positions during the quarter. Sealing Technologies segment profitability remained strong at 33.2% with positive volume growth, pricing discipline and excellent execution.

Aftermarket sales remained at 60% of the Sealing segment revenue in the quarter. In AST, order patterns strengthened as semiconductor industry expectations rose during the second quarter. Various market forecasts and indications from our customers suggest an acceleration of capital spending to support the need for more chip production as artificial intelligence, advanced computing and communications infrastructure take a quantum leap.

Currently, customer build plans and lead times extend healthy visibility through 2027 for our semiconductor-facing products and solutions. Demand is accelerating for precision cleaning solutions in all regions, prompting incremental investment in capacity. Demand is also very healthy for highly engineered critical and chamber tools and our optical coatings capabilities.

We remain focused on delivering for our customers by maintaining flexibility in our capacity with innovation, supply chain management, recruitment, inventory and process controls. Our ongoing process and qualification work, 80/20 efforts focusing resources on our best opportunities, together with completed and ongoing investments in people and capacity to support growth opportunities and new platforms position the AST segment to perform well as demand continues to improve in coming periods.

Before I pass the call over to Joe for a more detailed review of our results, I would like to provide updates on the integrations of AlpHa and Overlook, which are going very well. We are pleased with the process analytics and compositional analysis capabilities that AlpHa and AMI bring to Enpro. We are investing in new product development, technology and applications expansion in these exciting areas to drive above top line growth over the long term.

With Overlook, we are delighted with how their fluid path technology for liquid dose biologics complement Enpro's single-use biopharmaceutical capabilities. We continue to support Overlook's growth with additional capital and access to our supply chain, safety, human resources and best-in-class financial management capabilities. In both cases, we aim to provide our newer colleagues with a safe and healthy working environment and opportunities for professional development and growth while sharing best practices across the company.

Our strong specified aftermarket positions in Sealing Technologies provide ample resources and talent to reinvest in key growth areas of the segment to drive mid-single-digit organic growth over the long term, complemented by strategic acquisitions that can lift the segment's growth rate over time. We remain focused on advancing the growth priorities underpinning the Enpro 3.0 strategy, which will guide our performance through 2030.

Over the long term, we are positioned to generate mid- to high single-digit organic top line growth with strong profitability and returns complemented by capability expanding acquisitions in key growth areas of our portfolio that meet our stringent strategic and financial criteria. During the Enpro 3.0 horizon, we are targeting mid-single-digit organic growth in Sealing Technologies, while at AST, we are targeting high single-digit to low double-digit organic growth with both segments capable of generating 30% adjusted EBITDA margins, plus or minus 250 basis points through 2030.

Our cash flows allow us to maintain our strong balance sheet with a net leverage ratio currently at 1.6x after taking into account the fourth quarter 2025 acquisitions of AlpHa and Overlook and an $80 million reduction in revolving debt so far this year. Joe?

Thank you, Eric, and good morning, everyone. We are pleased to report these strong results for the second quarter of 2026 and an improved outlook for the balance of the year. For the second quarter, sales of $338.8 million increased 17.6% year-on-year, supported by 21.8% revenue growth at AST, 5% organic growth in Sealing Technologies as well as contributions from our recent acquisitions. Second quarter adjusted EBITDA of $86.9 million increased more than 22% compared to the prior year period.

Total company adjusted EBITDA margin of 25.6% expanded 90 basis points year-over-year, driven by strong operating leverage on higher sales in the AST segment and consistent best-in-class performance in the Sealing Technologies segment. Corporate expenses of $15.7 million in the second quarter of 2026 increased from $12.1 million a year ago, primarily driven by higher incentive compensation accruals and $1.3 million in restructuring costs.

Adjusted diluted earnings per share of $2.50 increased 23.2%, largely driven by the factors behind adjusted EBITDA growth year-over-year. Moving to a discussion of segment performance. Sealing Technologies sales increased 15.3% to $216.2 million. Growth was driven by contributions from the AlpHa and Overlook acquisitions, strong aerospace performance and double-digit organic growth in domestic general industrial markets.

Nuclear and power generation applications were steady in the quarter, while commercial vehicle markets remained tepid, as Eric discussed earlier. We also observed weakness in our smaller European general industrial and food and biopharmaceutical markets during the quarter. For the second quarter, adjusted segment EBITDA increased 13.3%, driven by strong operational performance, strategic pricing initiatives, contributions from AlpHa and Overlook and foreign exchange tailwinds. These drivers were partially offset by continued softness in the commercial vehicle market and investments supporting growth initiatives across the segment.

Adjusted segment EBITDA margin was 33.2% and remained above 30% for the 10th consecutive quarter. Turning now to Advanced Surface Technologies. Sales for the second quarter increased 21.8% with orders improving sequentially. Demand for precision cleaning solutions tied to advanced node chip production is very strong. In addition, book-to-bills for our capital equipment and coatings facing solutions have also materially increased.

Our teams are working tirelessly to deliver these important products and solutions while collaborating with customers to advance and expand leading-edge semiconductor production capabilities. For the second quarter, adjusted segment EBITDA increased 48.5% over last year. Adjusted segment EBITDA margin expanded 430 basis points to 23.9%.

Operating leverage on higher sales growth and production volumes were the primary drivers of the increase. We also saw the foreign exchange headwinds experienced in last year's second quarter normalize. We continue to progress qualifications on a number of new solutions, many requiring multiple steps to our vertical integration process and are also responding to customer demand by advancing capital investments to support new platforms driving future growth.

Our #1 priority is to serve our customers and remain agile as we enter the early stages of a stronger period in semiconductor capital equipment spending. Moving to the balance sheet and cash flow. Our balance sheet remains strong, and we have ample financial flexibility to execute on our long-term organic growth initiatives and consider select acquisitions that align with our strategic priorities and deliver attractive returns.

We generated strong free cash flow of more than $60 million year-to-date, including investment in working capital to support strong customer demand, while capital expenditures and capitalized software approached $30 million year-to-date in support of growth and efficiency projects. In the first half, we repaid $80 million in revolving debt, bringing our leverage ratio to 1.6x trailing 12-month adjusted EBITDA.

Net debt as of June 30, 2026, stands at approximately $500 million. which includes $450 million in senior notes due 2033 and $130 million outstanding on our $800 million revolving credit facility, net of $77 million in cash and cash equivalents. We expect to continue generating strong free cash flow in 2026 while increasing our capital expenditure expectations to $60 million to $65 million, up from our previous expectation of around $50 million. These incremental investments are supporting growth opportunities, particularly in the AST segment in alignment with customer demand.

Finally, our strong balance sheet and cash generation provide us with ample liquidity to make these investments while continuing to return capital to shareholders. In the second quarter, we paid a [ $0.32 ] per share quarterly dividend totaling $6.9 million. We also have an outstanding $50 million share repurchase authorization.

Moving now to our increased guidance. We are raising our total year 2026 guidance issued in early May and now expect total Enpro sales to increase in the 14% to 16% range, up from 10% to 14% adjusted EBITDA in the range of $330 million to $340 million, up from $315 million to $330 million and adjusted diluted earnings per share to a range of $9.30 to $9.80, up from $8.85 to $9.50 previously.

The normalized tax rate used to calculate adjusted diluted earnings per share remains at 25% and fully diluted shares outstanding are 21.4 million. In Sealing Technologies, shorter cycle order patterns remain strong, and organic growth is expected to be in the high single digits in the second half of 2026, excluding the contributions from AlpHa and Overlook, which we still expect to be in the range of $60 million to $65 million this year.

Areas such as aerospace, digital infrastructure and communications, water and compositional analysis applications are the primary drivers of the expected strong second half performance in Sealing. We are still not contemplating a significant improvement in commercial vehicle markets in our increased 2026 guidance ranges. On profitability, we continue to expect Sealing segment margins to remain at the high end of our long-term target range of 30%, plus or minus 250 basis points for the year, with ongoing growth investments continuing throughout the segment.

In the Advanced Surface Technologies segment, market conditions are bright. Significant multiyear investment in advanced semiconductor infrastructure continues to accelerate, and we are seeing strong demand for the balance of the year with increased visibility through 2027. Through close partnership with our key customers responding to industry demand, we have seen significant order and backlog growth, supporting our improved outlook for the AST segment.

We now expect 20% year-over-year growth in the second half of 2026 with segment revenue growth rates and adjusted segment EBITDA margin both approaching 25% exiting the year. Thank you for your time today, and I will now turn the call back to Eric for closing comments.

Thank you, Joe. Our primary goal is to maximize the potential of our business while creating an environment for our colleagues to grow and flourish. There is purposeful balance inherent in the Enpro portfolio in addition to consistent execution and disciplined capital allocation focused on organic growth and strategic M&A position the company to perform well in a variety of macroeconomic environments, while driving our goals to increase enterprise value and generate attractive returns for our shareholders. As I have said many times in the past, there is no better time to be a part of Enpro. Thank you for your interest in Enpro. We'll now welcome your questions.

[Operator Instructions]

Our first question comes from the line of Jeff Hammond with KeyBanc Capital Markets.

Eric, thanks for the Enpro 3.0 update. That was great. Just on the guide, I mean, it seems like most or all of the raise is AST. Is that right? Or are we feeling a little bit better about Sealing? And maybe just what underpins kind of that acceleration in growth in Sealing into the second half?

Yes. Jeff, the majority of the guidance raise is AST, although Sealing is improving through the year. I mean we talked about it last quarter that we would see mid-single digits to high single-digit organic growth in Sealing for the second half of the year, and that's coming to fruition. I mean we've seen improved orders in both general industrial, aerospace, and compositional analysis in a couple of our other end markets. So the majority is AST, but we're definitely seeing strong organic industrial demand in Sealing as well.

Okay. And then just on the CapEx raise, is this just simply adding capacity around AST or maybe talk more about some of the incremental growth investments?

Yes, Jeff, we're just pulling forward some investments just to accelerate the growth really in the cleaning space in AST. So we talked before about our Arizona investment. We're pulling forward to the second phase of that. We're also adding capacity in Milpitas, California and continuing to invest in Taiwan to keep up with customer demand.

Okay. If I could just slip one more in. Just you mentioned domestic general industrial up double digits. I know that's kind of a catch-all category. But maybe just expand on what you're seeing there? Is that just PMI driven or something broader than that?

Jeff, it's really in our core industrial markets in the U.S. So think of chemical, process industries, other industrial applications. There's no doubt we're benefiting from some of the infrastructure build-out around data centers and other key applications that are sort of core to Garlock. So yes, that's really driving compositional analysis, another area that falls into our general industrial space, and we're seeing strong demand in AMI and some of those core natural gas applications.

Our next question comes from the line of Tomo Sano with JPMorgan.

Congrats on the quarter. On the 430 bps AST margin improvement, could you talk about the key contributions? And if you could distinguish what portion of the AST margin uplift is sustainable versus transient going forward?

Yes. So Tomo, as you said, we saw about 430 basis points of year-over-year margin improvement in AST. If you recall looking back, we did have an unfavorable FX related to transactional Taiwanese working capital last year. So that was a little over $2 million. So that did -- that was more of a prior year issue that was favorable item year-over-year.

The rest is really all driven by stronger volume, both on the sales side, improved production, the leverage we're getting on that and improved volumes related to increased inventory. We're seeing incredibly strong demand for the second half of the year and now into 2027. So our teams in AST have worked hard to build inventory to support that demand and support our customers as we expect that to ramp up. So we have been able to build a little inventory, which is bringing us some volume leverage as well.

And one follow-up on the -- could you walk us through the environmental reserve [ built ] and how you frame the risk range for incremental reserves and cash outflows, please?

Yes. So the increase in environmental reserves that we took this quarter was related to legacy related environmental liabilities from many decades before Enpro was founded. So our teams have been working really hard over the years to kind of manage these legacy liabilities and have done a really nice job partnering with the local communities, the government, et cetera, to manage them to the right outcome.

So this was specifically related to uranium mines in Arizona that go back many decades. And we've come to what we think is a probable solution with the government and the local communities that will require some management of the soil and some other movements of that in the coming years. So that was now a probable solution, and we've increased our reserve to reflect that likely outcome.

And just to add on that, the $60 million reserves at a pretty strong midpoint with the EPA and other governmental agencies. And first, cash outflow won't happen for the next 3 years or so. So we think we're more than amply reserved to make sure that we're bringing those areas that were going back is [peds] as far as 1950s back to proper condition.

Yes. And that will be as long as potentially a 10-year project. So cash outflow will not be -- we don't expect to be meaningful in any given year.

[Operator Instructions]

Our next question comes from the line of Steve Ferazani with Sidoti & Company.

Appreciate all the detail on the call. Eric, can you talk a little bit about the performance of compositional analysis really since you acquired AMI and now adding AlpHa. Obviously, on the AMI side, probably when you acquired it, you weren't expecting the kind of domestic natural gas production growth and demand that we're seeing. I'm assuming that's got to be outperforming your expectations from a couple of years ago. And now adding it AlpHa, your outlook for an opportunities in compositional analysis, do you see ability to grow the addressable market, take share? And what are the opportunities ahead even on an M&A side?

That's a lot. Yes, we did expect growth in natural gas. That was part of the thesis, although we also expect that we can take the same technology and the same sensors and put them in other spaces. So measuring moisture, oxygen, H2S. So those sensors can be used in a whole bunch of applications, including biopharmaceutical and a range of products.

We expect to be able to expand the geography. So they're basically North American focused. We can take the same technology in Europe and other places and all other applications. So yes, we can grow the [ TAM]. It's a wide opportunity, and we're accelerating that growth and really excited about it. AlpHa is just another one. In addition, we remain active and looking at targets all the time for extra M&A. And so we remain active and hopeful.

Excellent. In terms of the growth, can you talk about where you are in pricing across your segments, the opportunities there to drive further revenue and margin growth? And if I can just add this into this question, we're hearing a lot about this through the earnings season. Were there any tariff refunds in the number?

The tariff refunds, we always say were minimal and manageable. We said that all the way on the way up. So it will be the same on the way down. So there's a little bit, but not a significant impact. In terms of pricing power, yes, there's still pricing opportunities a little bit with AlpHa and our newer acquisitions. We don't have the same pricing discipline as we do, I would say, throughout Enpro.

There's still also a little bit of price opportunity always in just targeted applications, but it's niche. We'll get our standard industrial raise in Sealing every year, 2% or so. We don't do cost plus pricing, Steve. It's all value pricing. So it looks at the application and what we contribute and how -- so it's always strategic pricing. It's not broad-based other than our general increases that happen basically once a year. And so I never think there -- I always think there is opportunity for price someplace, and it's being agile enough to figure out where to apply it.

Yes. Our qualified and specified positions with strong aftermarket, especially in Sealing Technologies is a key element to driving strategic pricing initiatives in the future.

Our next question comes from the line of Ian Zaffino with Oppenheimer & Company.

Just like to dig down in AST a little bit more. Maybe talk about kind of where the strength is as far as maybe cleaning versus components, optical coatings, where is that? And as we look into second quarter, is that all kind of -- I'm sorry, second half. Is that all just leading edge driven? Or any other kind of commentary you could give us around maybe your whole product lineup?

It's broad-based. So it's throughout our cleaning business is growing strong. [ Precision Machining ] is growing very well as well. Optical coatings is a little bit slower than that, but still doing great. So all in all, it's broad-based and wide. So mostly it is still leading edge, but there is -- we're benefiting it throughout the whole cycle, if you will.

Ian, I'll just add. As you know, our Precision Cleaning business is all leading edge, right? So as they continue to see leading edge infrastructure build-out and increased production, we're benefiting very well with our key customers from a cleaning perspective, we continue to invest in new capacity across all of our geographies really based on the current demand and projected future demand over the next couple of years.

So that's all leading edge. Our equipment business is a little bit of mix of both. But there's clear significant investment going on right now in leading-edge chip architecture and infrastructure for advanced AI and other computing, which is driving a lot of that build-out for equipment.

Okay. And then on the commercial vehicle, is that all on the trailer side? And anything else you're kind of seeing? And then what's kind of your outlook? And I know it's been relatively soft, but we're kind of seeing an improvement in the truck side. And I know they're not exactly correlated, but kind of same [indiscernible] in the ecosystem. So wondering what kind of visibility is there? Any kind of optimism you have in that segment? Or any other color you could give us?

Yes. It is mostly trailer. It's more than what, 70% trailer. So it's a large -- certainly the largest part of it. I think it might be larger than that. We are -- I am optimistic. Let me say this, FPR (sic) [ FTR ] is posting double-digit growth next year, I think 17%, 18% last time I saw. I do think that will happen. The investment in truck came ahead of the trailer, if you look -- and some of that was to be pollution controls and extra cost in trucks.

So first, they invested there. You saw the growth in trucking this year. We're starting to see some signs of it improving in the second half of this year, although still not significant. But I think we're at definitely -- I would say we're at the bottom and getting better, and there's starting to be momentum there. I'm excited about next year for that business.

[indiscernible] more than 2/3 as a percentage of revenue in commercial vehicle as well.

The other thing that team performs very, very well. We've maintained very good margins through this whole cycle. The team executes well. And so I'm excited they'll see a little bit recovery and do very well. It's kind of upturn here. We've also taken some share in the downturn that will show up later.

And we've also made some select capacity and process expansions to position the business well to perform as the market inevitably recovers.

Yes. I could give you a little more color on that. We basically added a line during this downturn to support aftermarket. In the past, we've had challenges when the market was growing fast with keeping up with both OEM and aftermarket. And so we added a second line there that will help us in this upturn.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Gentile for any final comments.

We're seeing strong momentum across the portfolio, and we want to thank you all for your support and look forward to talking to you and report Q3 in early November. Thanks.

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

Greetings, and welcome to the Enpro First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to James Gentile, Vice President, Investor Relations. Thank you. You may begin.

Thanks, Jessie, and good morning, everyone. Thank you for joining us today as we review Enpro's first quarter 2026 earnings results and discuss our improved outlook for 2026.

I'll remind you that this call is being webcast at enpro.com, where you can find the presentation that accompanies the call.

With me today is Eric Vaillancourt, our President and Chief Executive Officer; and Joe Bruderek, Executive Vice President and Chief Financial Officer.

During this morning's call, we will reference a number of non-GAAP financial measures. Tables reconciling the historical non-GAAP measures to the comparable GAAP measures are included in the appendix to the presentation materials.

Also, a friendly reminder that we will be making statements on this call, including our current perspectives for full year 2026 guidance that are not historical facts and that are considered forward-looking in nature. These statements involve a number of risks and uncertainties, including those described in our filings with the SEC. We do not undertake any obligation to update these forward-looking statements.

It is now my pleasure to turn the call over to Eric Vaillancourt, our President and Chief Executive Officer. Eric?

Thanks, James, and good morning, everyone. Thank you for your interest in Enpro, as we discuss our first quarter results, provide an update on strategic initiatives and share our current views for the balance of 2026.

Before we discuss our results for the first quarter, I would like to recognize our 4,000 colleagues across the company who are accelerating their personal and professional growth, while contributing to Enpro's strategic and financial successes. Momentum and excitement is showing up throughout the organization. And we are off to a strong start in the second year of Enpro 3.0.

We are energized to continue providing critical products and solutions to our customers, while driving significant enterprise value creation, by unlocking compounding strength of our portfolio. Our leading market positions, committed colleagues and strong balance sheet support the continued execution of our multiyear value creation strategy.

After my update, I will turn the call over to Joe for a more detailed discussion of our results and drivers of our increased guidance for 2026.

Now on to the highlights for the first quarter. We started 2026 off on the front foot with reported sales up nearly 11% year-over-year. Improving demand in semiconductor markets drove sales in the Advanced Surface Technologies segment up over 11%. Additionally, the contributions from the 2 businesses that we acquired in the fourth quarter, AlpHa Measurement Solutions and drove Sealing Technologies sales up 10.8%.

Total company adjusted EBITDA increased nearly 13% to over $76 million at a margin over 25% for the first quarter. We are pleased with these results, especially as we continue to invest in growth opportunities across the company at high-margin return thresholds, while accelerating investments in the development and growth of our colleagues.

Throughout our organization, teams are excited to drive our 3.0 strategy forward. Our early progress shows the benefits we expect to unlock as we move into this phase of our strategy. We are confident that our proven excellent execution will allow us to continue to succeed in a variety of macroeconomic backdrops.

In AST, positive trends across the segment's portfolio of products and solutions are translating into strong performance. The slope of the demand curve has steepened with order patterns accelerating during the first quarter ahead of our expectations at the start of the year.

For us, execution is top of mind. And we began building inventory during the first quarter to ensure that we can effectively deliver for our customers and proactively manage potential capacity, supply chain and labor constraints as demand increases.

We are already seeing the investments we made in AST during the downturn begin to bear fruit in the early stages of the recovery cycle.

We expect these investments will position us well to capture opportunities from the acceleration of semiconductor capital equipment spending for the balance of the year and beyond.

We also believe that, our vertical integration model is a key differentiator for Enpro in the next phase of the semiconductor industry growth, as many of our new business wins are using more of our solutions to drive value for our customers, enhancing our specified position in critical in-chamber tools, including gas dispersion and wafer handling applications.

In addition, hard work to qualify and earn processor record designations solidifies our position in leading-edge precision cleaning solutions, a business that is currently strong and accelerating.

Our capacity expansion in Taiwan, California and Arizona, both executed and ongoing, position us to participate in the rapid expansion of leading-edge chip production, capacity supporting advanced computing and artificial intelligence.

In Sealing Technologies, segment revenue of 10.8% was primarily driven by the first full quarter contribution from the acquisitions of AlpHa and Overlook completed in the fourth quarter of 2025, recovering nuclear solutions sales and currency tailwinds.

Commercial vehicle sales were down year-over-year, below our expectations as demand remains slow, although we're cautiously optimistic that we are nearing the bottom in commercial vehicle markets.

Aerospace sales in Sealing were flat year-over-year, reflecting a difficult year-over-year comparison in commercial aerospace, which was partially offset by continued acceleration in demand for products supporting space applications.

Total Sealing segment orders were up double digits during the first quarter. Sealing Technologies segment profitability remained strong at 32.5% with disciplined execution helping to offset continued growth investments, softness in commercial vehicle sales and tepid general industrial demand internationally. Aftermarket sales represented 60% of Sealing segment revenue in the quarter.

Integration is going well at AlpHa and Overlook. And we are making the appropriate investments to fully integrate these businesses into Enpro and unlock additional growth opportunities.

Our new colleagues are already finding ways to leverage Enpro network, including our sourcing, supply chain capabilities and operational expertise while delivering strong top line growth during the first quarter.

Additionally, AMI, which we acquired in January 2024, continues to perform above plan. We expect the Sealing Technologies segment to continue to deliver continued best-in-class performance.

Our growth priorities underpinning the Enpro 3.0 strategy remain unchanged and will guide our performance through 2030. Over the long term, we are positioned to generate mid to high single-digit organic top-line growth with strong profitability and returns complemented by capability expanding acquisitions that meet our rigorous strategic and financial criteria.

We are targeting mid-single-digit organic growth in Sealing Technologies. While at AST, we are targeting at least high single-digit organic growth, with both segments capable of generating 30% adjusted segment EBITDA margins plus or minus 250 basis points through 2030.

Our cash flows allow us to maintain our strong balance sheet with a net leverage ratio currently at 1.9x after taking into account the fourth quarter acquisitions of AlpHa and Overlook.

Our first capital allocation priority is to reinvest in the business and our people, while pursuing select strategic acquisitions that expand our leading-edge capabilities and meet our stringent criteria, without the use of excess leverage to drive growth in line or above Enpro 3.0 goals. We are excited to deliver on our promises and continue to execute our strategic plan. Life is good at Enpro and the future is bright. Joe?

Thank you, Eric, and good morning, everyone. Enpro started 2026 with strong results and consistent execution despite a dynamic macroeconomic environment.

For the first quarter, sales of $303 million increased nearly 11%, supported by strong year-on-year revenue growth at AST of over 11%. The contributions from the recent acquisitions and steady overall performance in the Sealing Technologies segment.

First quarter adjusted EBITDA of $76.4 million increased nearly 13% compared to the prior year period. Total company adjusted EBITDA margin of 25.2% expanded by 40 basis points year-over-year, driven by consistent performance in the Sealing Technologies segment and a nearly 20% increase in AST segment EBITDA, which includes expenses tied to growth investments, both executed and ongoing.

Corporate expenses of $13.7 million in the first quarter of 2026 increased from $11.3 million a year ago, primarily driven by higher incentive compensation accruals and $1.2 million in restructuring costs. Adjusted diluted earnings per share of $2.14 increased 13%, largely driven by the factors behind adjusted EBITDA growth year-over-year.

Moving to a discussion of segment performance. Sealing Technologies sales increased 10.8% to $199 million. Growth was driven by the contributions from the AlpHa and Overlook acquisitions, a recovery in Nuclear solutions sales from the choppiness experienced last year, strength in compositional analysis applications, as well as strategic pricing actions. These gains more than offset soft commercial vehicle demand and slower general industrial sales internationally.

Foreign currency translation was also a tailwind. North American general industrial, aerospace and food and biopharma sales were firm throughout the quarter.

For the first quarter, adjusted segment EBITDA increased over 10%, driven by favorable mix, strategic pricing initiatives, contributions from AlpHa and Overlook and foreign exchange tailwinds, partially offset by lower commercial vehicle volumes and investment in growth initiatives. Adjusted segment EBITDA margin was 32.5% and remained above 30% for the ninth consecutive quarter.

Turning now to Advanced Surface Technologies. Sales for the first quarter were up over 11% and orders during the quarter hit a clear inflection point. Demand for precision cleaning solutions tied to advanced node chip production is accelerating.

In addition, our outlook for semiconductor capital equipment spending has improved. And we built inventory of key products during the first quarter to prepare for the expected increase in demand.

For the first quarter, adjusted segment EBITDA increased 18.5% versus the prior year period. Adjusted segment EBITDA margin expanded 140 basis points to 23.3%.

Operating leverage on higher sales growth and higher production volumes, as well as favorable mix were offset in part by $2 million of increased expenses tied to growth initiatives. Our #1 priority is to serve our customers and remain agile as we enter this period of unprecedented demand for our semiconductor products and solutions.

Moving to the balance sheet and cash flow. Our balance sheet remains strong. And we have ample financial flexibility to execute on our long-term organic growth initiatives and consider select acquisitions that align with our strategic priorities and deliver attractive returns.

We generated strong free cash flow in the first quarter, more than doubling from last year to $26.5 million, while capital expenditures increased nearly 40% to $13.1 million, largely supporting growth and efficiency projects.

During the first quarter, we repaid $50 million in revolving debt, bringing our leverage ratio to 1.9x trailing 12-month adjusted EBITDA. We expect to continue generating strong free cash flow in 2026 with an unchanged capital expenditure budget of around $50 million this year as we continue to invest in the company at solid margin and return thresholds.

Finally, our strong balance sheet and cash generation provide us with ample liquidity to make these investments, while continuing to return capital to shareholders. In the first quarter, we paid a $0.32 per share quarterly dividend totaling $6.9 million. We also have an outstanding $50 million share repurchase authorization.

Moving now to our increased guidance. We are raising our total year 2026 guidance issued in mid-February and now expect total Enpro sales to increase in the 10% to 14% range, up from 8% to 12%.

Adjusted EBITDA in the range of $315 million to $330 million, up from $305 million to $320 million previously and adjusted diluted earnings per share to range from $8.85 to $9.50, up from $8.50 to $9.20.

The normalized tax rate used to calculate adjusted diluted earnings per share remains at 25% and fully diluted shares outstanding are 21.3 million.

In Sealing Technologies, shorter cycle order patterns remain solid as we enter our seasonally strong second quarter. As Eric mentioned, we are seeing double-digit order growth year-on-year despite a slightly softer commercial vehicle outlook than previously expected. And we expect mid-single-digit revenue growth, excluding the contributions from AlpHa and Overlook in the Sealing Technologies segment for the year.

We are encouraged by positive order momentum in domestic general industrial, aerospace, food and biopharma and compositional analysis, as well as smaller but improving pockets of earned growth in areas such as communications and data center infrastructure.

We expect these elements to support improved sequential sales performance in Sealing Technologies into the second quarter while not factoring in any recovery in commercial vehicle markets in our improved guidance ranges.

Finally, we expect Sealing segment profitability to remain towards the high end of our long-term target range of 30%, plus or minus 250 basis points for the year.

In the Advanced Surface Technologies segment, we are seeing significant order momentum with strong acceleration in Precision cleaning solutions and critical in-chamber tools.

New platforms and capacity expansions that we have invested in will begin to generate revenue in the second half of 2026, with ramp schedules dependent on underlying volume into 2027 and beyond.

At this time, we expect AST revenue growth in the mid-teens range year-over-year, with segment profitability improving to a run rate close to 25% by the end of 2026 as capacity and supply chains aligned to meet elevated demand levels.

Thank you for your time today. I will now turn the call back to Eric for closing comments.

Thank you, Joe. We are excited to demonstrate our strength and agility as we continue to accelerate our personal and profitable growth in the second year of Enpro 3.0. Thank you all for your interest in Enpro. We'll now welcome your questions.

[Operator Instructions] Our first question is coming from the line of Jeff Hammond with KeyBanc Capital Markets.

This is Mitch Moore on for Jeff. Obviously, just really nice margin progression sequentially for AST. Could you help us just unpack a little bit how that inventory investment helped margins in AST? And then separately, just could you help us understand the margin trajectory kind of through the balance of the year? Is it kind of a linear progression to that 25% you talked about?

Yes. Thanks, Mitch. As you noted, we did see progression from the low 20%s to 23% and change for the first quarter. The inventory build, which is really important as we head into significant demand in the second quarter and more specifically for the back half of the year, contributed about 150 basis points to the margin increase in the first quarter.

We also saw Precision cleaning continue to be very strong, tied to advanced node precision cleaning work, both in Taiwan and the U.S., which helped margins. And we're also seeing a little bit of leverage on the revenue growth. We expect to continue to build inventory a little bit in the second quarter. It might be a little bit less than we had in the first quarter. And then revenue increasing to offset any lower inventory build potentially in the second quarter.

So margins relatively similar in the second quarter and then seeing incrementally throughout the second half, pointing towards that roughly 25% run rate that we expect to exit the year at.

Great. That's helpful. And then maybe just the Sealing. I think orders were up double digits in the quarter. Could you just expand on the order activity you saw there, where you're seeing it, if it's concentrated or more broad-based? And then if you could just talk a little bit about your confidence in Sealing kind of picking up through the remainder of the year with a little bit slower start here.

Very confident in Sealing picking up throughout the year. Our order rate is very strong, exiting the first quarter and building throughout the quarter. So very positive on the year. I don't have any concerns there. Very strong in North America, space, aerospace in general.

General industrial in the U.S. is still pretty strong. Only area of weakness really is general industrial and a little bit in Europe, a little bit in Asia. But it still doesn't have any meaningful impact to our overall results.

Our next question is coming from the line of Steve Ferazani with Sidoti & Company.

Appreciate the detail on the presentation. Eric, I understand commercial vehicles still being weak. Obviously, we've seen 3 or 4 quarters -- 3 or 4 months of much stronger Class 8 truck orders, obviously, coming off of a significant trough. When would you start seeing that? And do you -- is that built in at all that CV comes back at all in the second half?

It's not built into our projections at all, as we said in the script. Although, I am cautiously optimistic that it does start to pick up in the second half of the year. Keep in mind, the reason for the acceleration in truck orders is really to avoid the extra cost dilution enhancements in the trucks. And so right now, people are prioritizing trucks versus trailers. But that demand will normalize over time to roughly -- if you look over a 20-year cycle, it's about 250,000 units a year, we're somewhere 170,000 to 180,000 now.

So I expect next -- at the end of this year, beginning of next year, somewhere in that time frame, you'll start to see some momentum build. I mean, the ratio between trucks and trailers really doesn't change much. We expect to have about 1.1 trailers per truck. So you would expect that to come back. And our aftermarket business remains very strong.

Got it. How are you feeling about the 2 acquisitions now with the quarter under your belt? I know that with Overlook, they had made some pretty significant capacity additions prior to the acquisition. In terms of those 2 businesses, do they require significant investments to grow moving forward? How do you feel about them?

Very, very strong. Very excited about them going forward. They don't require significant investments. Overlook, they made a pretty significant investment and moved into a new building or did move into a new building in the first quarter. But that was already ongoing before we closed on the business. So it really, it was just a move at this point. And so most of the upfitting that already done and their backlog and their performance is really impressive. AlpHa continues to go well. And so we're still excited about those businesses going forward.

And I'll just add, Eric, the integrations are going well. I think the teams are joining our functional support, we're helping where we can there. We're already seeing some supply chain opportunities. In addition, we're making some smaller investments. But investments in their commercial organizations to help expand growth opportunities and enter a few new markets and new customers. So we expect that's an area that we can add value and help them grow over time.

And I think you mentioned in the script that AMI since the acquisition was 2024, I believe, continues to outperform in general. How are you thinking about that compositional analysis market?

Love the space. We just would like to do more. And we continue to have a very active pipeline and we continue to look for the right opportunities to meet all of our criteria that are exciting. And there's several opportunities in our pipeline exciting and the more and more opportunities seem like to come to the market. So there's more momentum in that space.

Overall, if you take into consideration the compositional analysis growth perspective. We're looking for a kind of minimum high single-digit organic top-line growth moving forward with incremental investments to expand end market positions and commercial expertise.

Got it. That's helpful. Just if I get one more in, in terms of where you are with the various qualifying processes to meet advanced node production. Is there a lot more to go there?

I don't think it ever stops. So I start by saying that. So no, Arizona is getting fully qualified now. I don't know how much longer -- it shouldn't be long at all. But at the same time, there's new investments in Taiwan that are just starting. There's new customers that are starting as well.

So I don't think it ever ends, 2-nanometer is going to start to ramp at some point in the next little bit and then you're already trying to qualify 1.4. So it's -- I don't it stops. I think of that as continued investment.

[Operator Instructions] Our next question is coming from the line of Ian Zaffino with Oppenheimer & Company.

This is Isaac Sellhausen on for Ian. Just on the updated guidance, if you could unpack a little bit more on what has changed with regards to the outlook for the AST business. Maybe if you could parse out the demand drivers between cleaning and coating and the semi cap side. It sounds like visibility is a bit better in capital equipment.

Yes, we're clearly seeing increased order momentum and longer lead times. And demand is inflecting significantly sooner and higher than we expected coming into the year from an AST's perspective. And it's coming from both. It's coming from precision cleaning and semiconductor capital equipment in really all geographies. So our increased guidance is pretty much all driven by AST.

Our teams are rallying around meeting the higher demand, working with our customers and the entire supply chain and all of our partners to kind of meet the overall industry demand. The outlook is really bright for the rest of the year.

The second half is firming up where when we had the call in February, we talked about we saw orders for the second half and really starting in the end of the second quarter.

Well, the second quarter is filling in nicely. We're seeing some of that demand come a little sooner into the second quarter. And the second half is clearly going to be significantly increased over the first half in the magnitude of double-digit increase second half versus the first half.

And the industry is all talking about rallying to meet this higher demand and out through the end of '26 and really into '27. So there's tremendous optimism. And we expect to participate and even outperform what the market expects.

Okay. Great. And then just as a follow-up on the margin outlook for both businesses, obviously, it sounds like you guys are managing any kind of inflationary pressures just fine. But is there anything to call out maybe on the cost side with regards to whether it's fuel or equipment. But yes, that would be helpful.

No, there really isn't anything that's going to be meaningful from the supply side or cost side. Like I said, we do a very good job in general.

We have no further questions at this time. So I would like to turn the floor back over to James Gentile for closing comments.

Thank you, everyone. We're seeing strong momentum across Enpro and look forward to updating all of you when we report second quarter results in early August. Have a great rest of your day.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. And you may disconnect your lines at this time.

Greetings, and welcome to the Enpro Q4 2025 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions] It's now my pleasure to turn the call over to your host, James Gentile, Vice President, Investor Relations for Enpro. Please go ahead, James.

Thanks, Kevin, and good morning, everyone. Thank you for joining us today as we review Enpro's fourth quarter year 2025 earnings results and introduce our outlook for 2026. I will remind you that this conference call is being webcast at enpro.com, where you can find the presentation that accompanies this call.

With me today is Eric Vaillancourt, our President and Chief Executive Officer; and Joe Bruderek, Executive Vice President and Chief Financial Officer. During this morning's call, we will reference a number of non-GAAP financial measures. Tables reconciling these historical non-GAAP measures to the comparable GAAP measures are included in the appendix to the presentation materials. Also, a friendly reminder that we'll be making statements on this call, including our current perspectives for full year 2026 guidance, that are not historical facts and that are considered forward-looking in nature. These statements involve a number of risks and uncertainties, including those described in our filings with the SEC. We do not undertake any obligation to update these forward-looking statements.

It is now my pleasure to turn the call over to Eric Vaillancourt, our President and Chief Executive Officer. Eric?

Yes. Good morning. Since launching this next phase of our value-creating strategy last year, there's been tremendous pride, motivation and focus throughout Enpro. The inherent balance and quality of our portfolio shined once again in 2025. Our teams have made considerable progress aligning the organization to our long-term strategic goals by leveraging our core capabilities and engineering expertise to expand new commercial opportunities while steadily finding ways to optimize our foundation. We advanced our strategic goals in the first year of Enpro by growing organically at 7.6%, holding or expanding margins despite increases in operating expenses supporting growth initiatives, deploying 2/3 of our capital expenditures towards growth and efficiency projects.

Allocating $280 million toward value-creating M&A with the acquisitions of [indiscernible] delivering total shareholder returns above premium peers, achieving and maintaining premium valuation reflective of a differentiated industrial technology franchise. And as a learning organization, each of our colleagues completed a minimum of 16 hours of training and personal development this year. We have clear line of sight in areas of the business where we can accelerate the growth and profit performance and are excited to work on these value-creating levers again in 2026.

Our growth priorities underpinning Enpro 3.0 strategy remain unchanged and will guide our performance from 2030. Over the long term, we are posing to generate mid- to high single-digit organic top line growth as strong profitability and return levels. We are targeting mid-single-digit organic growth in [ Sealing Technologies ]. While at AST, we are targeting at least high single-digit organic growth with both segments capable of generating 30% adjusted segment EBITDA margins plus or minus 250 basis points.

Now on to our full year 2025 performance. Enpro performed well in 2025 with sales up 9% to $1.14 billion, strength in aerospace, food and biopharma, firm domestic general industrial performance as well as improving performance in semiconductor markets were the primary drivers of the 7.6% increase in organic sales. Complementing our strong organic results for the partial quarter contributions from the acquisitions of [ Alpha Measurement Solutions and Overlook Industries ] completed in the fourth quarter of 2025. In addition to the AMI acquisition completed in late 2024.

[indiscernible] teams are energized and are hitting the ground running, and we are deli with our performance since they joined our Enpro family. We continue to be pleased with this best-in-class performance for our Sealing Technology segment. as well, I'm encouraged by AST steady performance on the choppiness we experienced in semiconductor capital equipment spending over the last few years. In all, we have been able to maintain premium profitability, free cash flow and solid returns on invested capital, despite the persistent weakness we experienced in areas of semiconductor and commercial vehicle OEM demand through 2025, while continuing to invest to support growth programs at AST and throughout the organization.

In Sealing Technologies, disciplined execution and efficient operations drove an adjusted segment EBITDA margin of over 32% for the second year in a row. Our teams are positioning the businesses to drive above-market growth by leveraging our applied engineering capabilities, durable aftermarket characteristics and specification positions to deliver important solutions to our customers in areas where we have clear technology and process advantages.

In addition, our pipeline of strategic acquisitions that can expand our capabilities in key growth areas throughout the segment remains robust, possessing premium characteristics that can enhance the growth profile of the segment over time. We will continue to be disciplined in pursuing these opportunities at the time and at the right value for our business.

At AST, revenue increased nearly 14%, with strength in solutions serving leading edge applications and pockets of recovery and semiconductor capital equipment demand. We continue to proactively invest capital and operating resources throughout 2025 in preparation for new platforms in anticipation of a recovery in semiconductor capital equipment spending. We are encouraged by the recent improved order flow in AST that will begin to be realized in the second half of 2026.

We remain well positioned to participate in a stronger semiconductor market in coming periods, while also seeking 80/20 improvements and cost realignment opportunities to drive incremental improvement in segment profitability over time. Thanks to the inherent balance and quality of Enpro portfolio, and the resilience of our business model, 2025 marked another year of robust free cash flow generation. Our cash flows allow us to maintain our strong balance sheet with a net leverage ratio of 2x after taking into account the recently completed acquisitions of Alpha and Overlook purchased for $280 million in aggregate.

Looking ahead to 2026 and beyond, we have ample financial flexibility [indiscernible] on our growth and optimization objectives and deliver premium results for our stakeholders. Under our Enpro 3.0 strategy, we are positioned to accelerate profitable growth through 2030. We are making considerable progress on our key growth priorities, and we'll continue to pursue select strategic acquisitions that fits our strategic characteristics of an Enpro business, drive incremental long-term growth and add complementary talent, technology and process expertise that expands Enpro's ability to answer critical needs of our customers. The foundation of this strategy is designed to extend our track record of strong shareholder returns and enterprise value growth while creating opportunities for our colleagues to develop and thrive.

We have the right positioning and discipline to deliver on these targets, especially as we reinvest in growth nodes across the portfolio and drive continuous improvement to maintain and opportunistically improve profitability. At the same time, with our dual bottom line culture as a cornerstone, we encourage each of our nearly 4,000 colleagues to accelerate their personal professional growth again in 2026. Our colleagues have made commitments to themselves and their teams to work on leadership and communication skills, financial acumen, psychological safety and awareness. Our team is pleased to continue on path to value creation as we empower technology and purpose. Joe?

Thank you, Eric, and good morning, everyone. Turning to our results for the quarter. Enpro performed well in the fourth quarter, reflecting momentum across the portfolio and continued progress executing our Enpro 3.0 strategy. In the fourth quarter, sales increased 14.3% to $295.4 million. We saw strong sales performance in aerospace and food and biopharma within Sealing Technologies, as well as improvement in overall AST sales led by continued strength in precision cleaning solutions supporting leading-edge semiconductor production.

In addition, strategic pricing initiatives, the partial quarter contributions from Alpha and Overlook and firm domestic general industrial performance helped offset slow commercial vehicle OEM sales and slow industrial sales internationally. Organic sales increased approximately 10%. Fourth quarter adjusted EBITDA of $69.4 million was up 19.2% and an adjusted EBITDA margin of 23.5% was up 100 basis points. Continued robust performance in the Sealing Technologies segment and the partial quarter contribution from the acquisitions completed during the quarter, were partially offset by increased operating expenses ahead of growth programs largely in AST.

Corporate expenses of $14.2 million were up $800,000 from a year ago, primarily due to increased medical costs. Adjusted diluted earnings per share of $1.99 increased nearly 27% compared to the prior year period. largely driven by the factors increasing adjusted EBITDA and lower interest expense tied to lower net borrowings.

Moving to a discussion of segment performance. Sealing Technologies sales of $187.1 million in the fourth quarter increased almost 15% versus last year. Healthy demand in aerospace and food and biopharma markets, strategic pricing actions, firm domestic general industrial sales and the partial quarter contribution from acquisitions completed during the fourth quarter offset continued weakness in commercial vehicle OEM demand and slow industrial markets internationally. Nuclear sales remained temporarily choppy during the quarter in Europe as well. Organic sales were up nearly 8% year-over-year.

For the fourth quarter, adjusted segment EBITDA increased more than 21% with adjusted segment EBITDA margin expanding 180 basis points to 32.8%. Strategic pricing, improved volume and the additions of Alpha and Overlook as well as firm aftermarket demand in the commercial vehicle market also contributed to the consistent year-over-year profit performance. We expect best-in-class performance in Sealing Technologies to continue. 65% of the segment sales are tied to critical positions in the aftermarket, offering the segment stability during periods of uncertainty.

In addition, we continue to earn new business by leveraging segment's technological expertise, process know-how and applied engineering capabilities to drive above-market organic revenue growth and to help our customers safeguard their critical environments. Overall, Sealing Technologies is well positioned to drive mid-single-digit top line growth organically with strong profitability during Enpro 3.0.

Turning to Advanced Surface Technologies. In the fourth quarter, sales increased 13.4% to $108.4 million. We saw continued strength in precision cleaning solutions tied to leading-edge applications, along with pockets of strength and precision components supporting semiconductor capital equipment and growth in optical coatings. Adjusted segment EBITDA increased approximately 3% versus last year. Adjusted segment EBITDA margin remained above 20%. We continue to invest in certain areas of the segment to support strength we are seeing in the leading edge.

Increased expenses supporting growth programs which totaled approximately $2 million in the fourth quarter and more than $8 million for the full year, continued ahead of revenue. Last quarter, we discussed a number of factors that will drive our near-term performance in AST, where we expect lower sales growth year-over-year in the first half, followed by improved performance in the second half, as Eric noted, evidenced by current order patterns. Also as a reminder, we shipped $12 million of safety stock inventory in 2025 to support customer supply chain transitions, which we'd not expect to recur in 2026.

On the cost side, we continue to make progress on optimization plans in AST and remain committed to expanding AST margins through appropriate operating leverage on sales growth. especially as we begin to realize the benefits of investments in operational resources supporting growth programs in coming quarters. We are well positioned to support our customers during the upcoming ramp and remain focused on delivering AST profitability towards 30% of sales, plus or minus 250 basis points on high single-digit, low double-digit revenue growth within the Enpro 3.0 planning horizon.

Turning to the balance sheet and cash flow. Our balance sheet remains strong, and we exited 2025 with a net leverage ratio of 2x inclusive of the $280 million in cash used to acquire Alpha measurement solutions and overlook industries during the fourth quarter. We continue to generate ample free cash flow to invest the necessary capital and operating expenses into our strategic organic growth opportunities. In 2025, we generated more than $150 million in free cash flow net of $48 million of property, plant and equipment and capitalized software expenditures in 2025. This was up 18% from the $130 million in 2024 and net of $33 million of capital expenditures.

During the fourth quarter, we substantially completed and settled the termination of Enpro's U.S. defined benefit pension plan. As a result of this transaction, Enpro incurred a noncash settlement loss of $67.2 million, which was recorded to other nonoperating expense primarily associated with recognition of life-to-date actuarial losses attributed to the plan previously deferred and accumulated other comprehensive income.

During this planned settlement process, existing plan assets more than fully satisfy the cash settlement obligations. Overall, we maintain ample financial flexibility to execute our strategic initiatives both organically and through strategic acquisitions that broaden our capabilities. Earlier last year, we expanded our revolving credit facility to $800 million from $400 million previously and currently have more than $580 million of available capacity. We are also maintaining our commitment to return capital to shareholders and during 2025, we paid a $0.31 per share quarterly dividend, totaling $26.2 million for the year.

On February 13, our Board of Directors approved another increase to the quarterly dividend to $0.32 per share, representing the 11th consecutive annual increase since we initiated a quarterly dividend in 2015.

Moving now to our 2026 guidance. Taking into consideration all the factors that we know currently, we expect total Enpro sales growth to be in the range of 8% to 12% in 2026, including the contribution of approximately $60 million from the acquisitions of Alpha and Overlook completed in the fourth quarter of 2025. We expect adjusted EBITDA to be in the range of $305 million to $320 million including $16 million to $17 million contributed from the recent acquisitions. Adjusted diluted earnings per share is expected to be in the range of $8.50 to $9.20.

The normalized tax rate used to calculate adjusted diluted earnings per share remains at 25% and fully diluted shares outstanding are approximately $21.3 million. Capital expenditures in 2026 are expected to be approximately $50 million or around 4% of sales as we continue to invest in growth opportunities across the company at accretive margin and return thresholds.

In the Sealing Technologies segment, we expect revenue growth, including the contributions from the fourth quarter acquisitions of Alpha and Overlook to approach 15% in 2026, with mid-single-digit organic growth for the year. We see continued strength in aerospace and food and biopharma markets and steady domestic general industrial demand drivers. We expect our commercial excellence programs, new growth programs leveraging differentiated capabilities and focus on solving critical problems for our customers to drive above-market growth this year.

While we do not expect a significant recovery in commercial vehicle OEM demand to occur in 2026, aftermarket drivers in that market remain firm. We expect strong operational performance to continue in Sealing Technologies, with adjusted segment EBITDA margin to again exceed 30% this year. In the Advanced Service Technologies segment, we are seeing clear signs of a robust recovery in semiconductor capital equipment spending as capacity for leading-edge applications gains momentum.

Today, we expect AST sales to grow high single digits, inclusive of the previously mentioned $12 million of equipment sales that we do not expect to recur this year, with the second half of 2026 being stronger than the first half. Precision Cleaning Solutions is expected to perform well throughout the year. as fab utilization and expansion of capacity for leading-edge applications accelerates.

On the equipment side, we expect growth to accelerate as we move through the year. predominantly driven by a second half improvement, multiple industry sources are predicting will occur and supported by our recent order patterns. We also expect demand for optical coatings to grow, as demand signals improve in semiconductor and communications infrastructure markets. We expect to see adjusted segment EBITDA margin expansion in AST in 2026, with margins increasing throughout the year. We expect AST's second half profitability to be materially better than current run rates as demand improves and we begin to leverage our recent growth investments.

Thank you for your time today, and I will now turn the call back to Eric for closing comments.

Thanks, Joe. I got so excited to talk about our results in the future. I jumped over our world-class safety performance. So I want to take a minute to recognize our teams across the company for their excellent safety performance in 2025. Safety is our first core value at Enpro and we begin every meeting with our safety pledge. striving to achieve an injury-free and psychologically safe workplace. Every day, we look after each other and we make sure we return home safely to our loved ones. In 2025, we recorded our best safety statistics ever with a total recordable incident rate of 0.64 and a lost time case rate of 209%.

Our world-class safety results reflect the day-to-day commitment of our active and engaged environmental health and safety communities of practice, we steadfast leadership and development of strong repeatable processes enable us to achieve these terrific outcomes. I'd like to celebrate these milestones as we continue to strive towards an injury-free workplace. Our value-creating strategy remains unchanged, and we are energized to deliver another year of strong performance and execution for our customers and shareholders in 2026. We continue to invest in areas where we are strongest, while pursuing strategic acquisitions to build upon our leading edge capabilities at attractive growth and margin levels.

I want to again recognize our dedicated colleagues across the company or the driving force beyond our success. Thanks to their contributions, we have a clear path to achieve our vision for Enpro 3.0. Thank you for joining us today. Life is good as Enpro and our best days are ahead. We now welcome your questions.

[Operator Instructions] Our first question today is coming from Jeff Hammond from KeyBanc.

You hit a lot of bull's eyes in that Enpro 3.0. Maybe just starting on AST, a little more color on how you're thinking about first half, second half kind of margins. I think you mentioned margins being substantially higher in the second half. So just flush that out a little bit more? And then just expand on the order activity you talked about and where you're seeing it and just how broad-based?

Yes. Sure, Jeff. I'll talk about the cadence first half, second half and a little bit about our margin expectations and then turn it over to Eric to talk about kind of current order demand and part of what we're seeing with our customers. So as we've been talking about, there's clear signs that the second half is going to be considerably stronger than the first half. I think you've seen that in a lot of expectations for market conditions across the semiconductor capital equipment guys. We're no exception. We're going to see moderate growth in the first half.

I would think low to mid-single digits, something like $100 million-ish sales for the first quarter, and margins similar to what we've experienced over the last couple of quarters. Things will accelerate through the year, and we expect some recovery starting in the second quarter, and then materially into the third and fourth quarter. So there's no doubt we're going to be on significant -- significantly higher growth rates as we move through the year, and we expect the second half to be stronger. At the same time, some of our key growth programs that we've been investing behind are set to start to materially contribute in the second half as well. So that's what we talked about margins in the second half being considerably stronger than the current run rate.

Yes, Jeff, we're seeing our order patterns continue to accelerate. So our order booking is getting stronger and stronger as the year goes on. In addition, we're having some customers that are starting to get more -- let's say, get more excited replacing orders and their order patterns increasing differently than it has been in the past. And so we're seeing the return to kind of what used to be in some cases. So we're more excited about the second half of this year. We also have 2 new platforms coming online, some of our growth investments that will start to get some legs probably in the late second half of this year.

Okay. Great. And then just on seeing a lot of discussion about short-cycle trends, PMI kind of bumping above 50. Just wondering what you're hearing from customers around that inflection domestically and just -- maybe a little more on how long you think this nuclear choppiness lasts.

Nuclear choppiness, I think, is going to last for a little bit, although we did have a little better order rate right now. but I expect that the second half would be choppy. But in general, our industrial business throughout Enpro is very, very strong. There hasn't been any let up. We're not seeing any reduction in orders or anything that would indicate that it's slowing at this point. still very strong and still our book-to-bill is higher than 100%. So still strong right now.

And I'd say, overall, we're seeing clear continued strength in space and aerospace, food and biopharma being strong. Industrial being just firm, as Eric mentioned, right, good order demand, customers feeling relatively confident and stable as we move into 2026. The areas where we're clearly seeing some offset to that is commercial vehicle OEM, which is expected to be flat to slightly down. And on top of that, we continue to win many different applications. We're seeing strong earned growth across new platforms in space, aerospace, food and biopharma, even in some of our traditional general industrial markets.

So if you blend all that together from a market perspective, the market is probably low single to low mid single-digit growth and where we expect our Sealing Technologies segment to outperform that and grow at least in mid-single digits this year.

Even the commercial vehicle segment being down, it was down so much before 25%, 26%, whatever it was being projected to be down another 9%. It's still not that many units. So I expect that business to recover as the year goes on.

Your next question is coming from Steven Ferazani from Sidoti & Company.

Appreciate all the detail on the call. Just wanted to walk through how things played out the last couple of months of the year versus your November guide, looks like revenue ended up running a little ahead of the guide, particularly on Sealing on organic growth, but margins may be a little bit softer. Can you walk through what you saw both on top line and on margins. It looks like either AST costs, you are continuing to make those ads in the last couple of months or perhaps it was on slightly higher corporate expense. Could you just walk through the revenue versus the margins the last couple of months of the year?

Yes. Thanks, Steve. Yes, I think things finished up pretty much as we expected through the end of the year. The sales were at the higher end of our range, but in -- relatively in line, margin was clearly right in the bull's eye of what we expected from an EBITDA perspective. We did, as you mentioned, see a little bit higher corporate expenses as we move through the year, really 2 drivers. Medical costs continued to increase and we saw a spike in just claims and overall medical expenses. And again, with our strong performance this year, we did have a little bit of higher short-term incentive costs associated with that forming, especially on our eCFRI metric, which is really driven by really good working capital management and strong free cash flow as we ended the year. So in general, I think fourth quarter, pretty strong and as expected.

Okay. As far as the 2026 guide and how that will turn into cash conversion. Given the higher CapEx expected second straight year, it's going to go up a bit. But when I look at 2026, your free cash flow basically around 100% of adjusted EPS, do you expect, even with the higher CapEx next year, but still in line given the top line growth? Do you expect cash conversion to remain somewhat around 100%. And then how you would use that cash given your balance sheet remains in great shape even after the couple of M&A activity in 4Q.

The short answer, Steve, is yes. We expect strong free cash flow conversion as a percent of adjusted net income. The one thing we will see a little bit higher interest expense in 2026 as we included in our EPS guidance because we had periods of 2025, where we really had no draw on our revolver. And with the late year acquisitions, right, we expect to be materially drawn on the revolver for the most of this year. So that will require a little bit higher interest expense, but our balance sheet is in really good shape, right? At 2x strong free cash flow expected again this year. We're well positioned to continue to allocate $250 million to $300 million or more, if needed, for strategic M&A.

Our pipeline continues to be strong. We have multiple targets that we've been working for a number of periods that meet our financial and strategic criteria, and it's just an element of the timing and availability of those assets. We are getting a lot of early looks, which is a good sign, right? We're having discussions with a number of assets that haven't even gone to market yet, cultivating those relationships and being ready for when they're actionable. So we feel really good about our balance sheet. As you mentioned, - we're stepping up for the last couple of years into our CapEx investments. The majority of that, 2/3 or more are going to growth investments, both in AST and in ceiling. And that's probably the right appropriate level for us to continue compounding growth as we move forward.

If I could just add one on -- in response to your answer. M&A focus, has that shifted at all what you're looking at?

No. We continue to look very aggressive looking. We probably look at an asset once or twice a week, but we're very, very disciplined about what we approach, and it will be both strategic and appropriate in terms of value we pay.

And again, Steve, we feel really good about the pipeline. We have a number of growth nodes where we have good, strong organic positions, and we're looking to add additional capabilities in technology in some of those spaces to continue to round our portfolio, have good growth characteristics and strategically allow us to continue to grow in those markets like compositional analysis that we talked about on the last call and food and biopharma right in the wheelhouse of what we did with overlook and alpha and more assets like that in AMI where we're focused.

[Operator Instructions] Our next question is coming from Ian Zaffino from Oppenheimer.

This is Isaac Sellhausen on for Ian. I just had one on AST kind of the margin expectations and ramp through the year. Should we expect any higher OpEx associated with the qualification work in 2025? And should that continue this year? Or any additional color you can provide on the ramp through the year?

Isaac, I think materially, we're at the run rate for those additional operating expenses, right? We've been at that for a number of quarters where we have a number of qualifications and additional growth opportunities kind of layering on top of each other. We talked about that last call, and we're at the run rate of about $2 million a quarter right now of operating expenses ahead of demand. And with all of those, we're kind of at the point now where we're progressing well, and we'll start to see revenue come in and leverage against those costs really throughout 2026, right? We always have growth programs going on. We always have investments ahead of revenue. We just have a lot of them going on at the same time in multiple places, both for additional growth opportunities geographically, customer expansions, platform expansions.

So we don't expect any incremental spending on those specific programs in the near term. We're just kind of at that similar run rate and then as those programs deliver revenue as we move through 2026, they'll leverage against that. And that's why we said we're confident that the second half, not just because of demand improving, from general capital equipment spending increase, but also from those growth programs, delivering revenue and leveraging against those expenses, we'll see some margin expansion as we move through the year and more predominantly in the second half.

Okay. Understood. And then just as a quick follow-up on [ Ceilings ] with the addition of Alpha and Overlook this year, if you could just touch on how you anticipate those businesses perform maybe compared to the mid-single-digit growth rate that you gave for the segment.

The businesses both have very good backlogs and very good order rates. And so they're -- right now, they're exceeding our expectations and it's really full speed head. No concerns and integration has been very seamless at this point.

Ian, both of those businesses, the inherent market drivers and strong secular growth characteristics should grow at least high single digits combined, as we move forward. So we expect them to be accretive from a growth rate perspective over time and in the short term to the Sealing Technologies segment.

We reached the end of our question-and-answer session. I'd like to turn the floor back over to James for any further closing comments.

Thank you for your interest today. We look forward to updating you in May when we report Q1, and we're available to answer any questions that you may have as you review our results. Thank you again for your interest.

Thank you. That does conclude today's teleconference webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.

Greetings, and welcome to the Enpro Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, James Gentile, Vice President, Investor Relations. Thank you. You may begin.

Thanks, Melissa, and good morning, everyone. Welcome to Enpro's Third Quarter 2025 Earnings Conference Call. I remind you that our call is being webcast at enpro.com, where you can find the presentation that accompanies this call. With me today is Eric Vaillancourt, our President and Chief Executive Officer; and Joseph Bruderek, Executive Vice President and Chief Financial Officer. During this morning's call, we will reference a number of non-GAAP financial measures. Tables reconciling historical non-GAAP measures to comparable GAAP measures are included in the appendix to the presentation materials.

Also a friendly reminder that we will be making statements on this call, including our perspectives for full year 2025 guidance that are not historical facts and considered forward-looking in nature. These statements involve a number of risks and uncertainties, including those described in our filings with the SEC. We do not undertake any obligation to update these forward-looking statements. It is now my pleasure to turn the call over to Eric Vaillancourt, our President and Chief Executive Officer. Eric?

Thanks, James, and good morning, everyone. Thank you for joining us today as we review our third quarter financial results and provide an update on our strategic progress. We greatly appreciate your support. It certainly is an exciting time to be [indiscernible] Enpro. After a brief discussion of our quarterly performance and acknowledgment of the hard work ongoing across the organization, I will turn the call over to Joe for a more detailed discussion of our third quarter results and current guidance perspectives for the balance of the year.

Now on to our third quarter 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 AST. The strength of our business model was demonstrated again during the quarter with total Enpro adjusted EBITDA margin above 24%, which included increased operating expenses supporting growth initiatives in both segments. Complementing the strong quarterly performance, we continue to advance Enpro 3.0 strategy with the Overlook Industries acquisition and our agreement to acquire AlpHa Measurement Solutions, which we announced on October 13. Both of these acquisitions will expand our capabilities in critical growth areas of the portfolio without the use of excess leverage.

We closed our acquisition of Overlook on October 8 and expect the acquisition of AlpHa to close during the fourth quarter of 2025. Once required regulatory approvals are received and other customary closing conditions are satisfied. AlpHa and Overlook are great examples of our ability to identify businesses that fit our strategic growth characteristics while meeting our stringent financial criteria. Both businesses have significant technical competence, customer intimacy and competitive differentiation while bringing strong business leadership, all characteristics reflective of an Enpro business.

AlpHa's portfolio of liquid sensing capabilities complements our existing gas stream solutions acquired with AMI, broadening our portfolio of sensing technologies and instrumentation for compositional analysis in key end markets such as industrial process control, water and wastewater, laboratory and environmental monitoring. The sensing and measurement parameters brought together to further our compositional analysis strategy enable us to detect unwinded oftentimes trace compounds in a variety of processes, which in turn enable us to solve our customers' critical problems. Overlook specializes in engineering, design and fabrication of single-use technologies, another critical componentry that expands our position in biopharmaceutical manufacturing.

Overlook's capabilities expand in liquid dose biologics, a secular growth area that continues to expand as liquid, single-use medicines are increasingly replacing those taken orally. These medicines target a number of evolving areas in oncology, immunology and dermatology, amongst many others, as the market is poised to accelerate over the next decade. Within our Garlock Hygienic Technologies business, Overlook furthers our technology expertise and customer intimacy by answering the industry's accelerating need for tailored single-use consumables as more stringent aseptic processing is essential to prevent contamination.

Our business teams are continuing to identify acquisition targets that broaden our leading edge capabilities and bring them into Enpro as we strategically expand our portfolio of critical products and solutions. I would like to thank those involved in the preparation and execution of these transactions as we are excited to begin integrating these bright new colleagues and successful teams into our organization. Turning to our segment results for the quarter. In Sealing Technologies, sales increased 5.7%, highlighted by strength in aerospace and food and biopharma demand, firm aftermarket performance in general industrial and commercial vehicle markets and strategic pricing initiatives.

Solid performance in these areas more than offset persistent weakness in commercial vehicle OEM market and soft overall industrial demand in Asia and Europe. Sealing segment profitability remained above 32%. In Advanced Surface Technologies segment, sales increased more than 17% led by growth in leading-edge precision cleaning solutions and improved demand for certain semiconductor tools and assemblies. AST segment profit increased double digits over the last year, though operating leverage was impacted by continued growth investments such as preparation for advanced chip production domestically and accelerating qualification work on new platforms and next node development.

Slightly unfavorable mix was also a headwind, which Joe will discuss in greater detail in a moment. Across Enpro, we continue to pursue targeted incremental capacity expansions in areas where we are winning, preparing to solve critical problems for our customers and investing in and expanding our differentiated capabilities. Our aim is to unlock the compounding features of our business model and drive value creation into the second year of our 3.0 phase and beyond. In Sealing Technologies, for example, we are currently expanding capacity and investing resources to support future growth in compositional analysis, aerospace and commercial space applications.

In commercial vehicle, we are making investments to support incremental market share gains with new products and expanding partnerships with key customers. We are readying our manufacturing processes to be well positioned for the inevitable recovery of the current trough and trailer builds. Across the Sealing segment, our teams are making strides to identify new market opportunities and specify our process solutions for critical positions in higher-growth markets, including life sciences, space, hydrogen, semiconductor, nuclear, energy storage and digital infrastructure applications.

Our teams are excited about these efforts as we expand our capabilities and reinvest in growth opportunities to drive long-term profitable growth in Sealing Technologies. AST is busy, and we'd like to acknowledge our colleagues for their hard work. In AST, we offer critical products and solutions and our customers come to us to solve exacting problems that enable contamination control, efficient and chamber environments, process and equipment protection and economic yield optimization for semiconductor fabs. During the quarter, we experienced strong demand for our leading -edge precision solutions and some recovery in semiconductor tools and assemblies, while pursuing stringent qualifications for next-generation platforms.

As we have said in recent quarters, we have been making disciplined investments in key areas of the business that will serve as growth platforms to support our long-term expectations for the segment. We continue to implement certain continuous improvement and optimization actions that can drive incremental margin expansion and a more robust overall semiconductor market recovery. As our pipeline continues to expand, we are well positioned to deliver. The Enpro 3.0 strategy is proceeding as planned as we approach our second year, and we are excited about the many opportunities ahead. The business is positioned to drive mid-single-digit revenue and growth in the Sealing Technologies segment and high single-digit, low double-digit growth in AST over time.

Our programmatic M&A strategy has been additive to these organic growth perspectives over our 3.0 planning horizon. We are pleased with the Sealing segment's ability to consistently generate profitability towards the high end of our targeted ranges over the past 3 years and expect this level of impressive performance to continue. For AST, the segment has demonstrated its ability to generate profitability in the high 20% to low 30% range in the past, and we are taking steps to unlock value inherent within the segment and deliver more consistent performance at these levels as we continue to invest in the areas where we are strongest, while implementing our playbooks to continuously optimize performance over time.

Before I pass the call over to Joe to discuss our results in more detail, I want to thank everyone at Enpro for your valuable contributions to our company, and I encourage each of you to continue investing in your personal and professional growth as we work toward to deliver the critically important solutions to our customers. Joe?

Thank you, Eric, and good morning, everyone. We are very pleased with our performance so far this year. Now let's get into the details of our third quarter results. In the third quarter, sales of $286.6 million increased nearly 10%. We saw continued strong Sealing Technologies performance overall and more than 17% year-over-year sales growth at AST, even as some of our markets remain choppy.

Third quarter adjusted EBITDA of $69.3 million increased 8% compared to the prior year. Adjusted EBITDA margin of 24.2% was down slightly from last year. Ongoing investments in people and processes across the company to support future growth as well as unfavorable mix in AST absorbed the benefits from operating leverage during the quarter. Our corporate expense of $10.2 million in the third quarter of 2025 was essentially flat compared to last year. Adjusted diluted earnings per share of $1.99 increased more than 14%, largely driven by the factors that drove the adjusted EBITDA improvement year-on-year and lower net interest expense.

Moving to a discussion of segment performance. Sealing Technologies sales increased 5.7% to $178.2 million. Strength in aerospace and food and biopharma applications, firm aftermarket demand in domestic general industrial and commercial vehicle markets and strategic pricing more than offset persistent weakness in commercial vehicle OEM markets. Nuclear orders were impacted by political uncertainty in France, which influenced funding and procurement and is expected to be temporary. Industrial demand in Europe and Asia was also tepid during the third quarter.

Aftermarket sales comprised 65% of total segment revenue year-to-date. For the third quarter, adjusted segment EBITDA margin remained strong at over 32% despite growth investments mentioned previously. Segment profitability remains at the high end of our targeted range. We are excited about the number of drivers of long-term growth and value creation in Sealing Technologies as we focus on expanding opportunities through growth investments and strategic acquisitions. On the topic of strategic execution in Sealing, we are delighted to have found 2 great businesses in our recently announced transactions. We welcome the Overlook team into Enpro and are excited to begin working with our new AlpHa colleagues once that deal closes, which we expect to occur in the fourth quarter of 2025.

As Eric talked about in detail earlier, these 2 organizations advance our capabilities in key growth areas of the Enpro portfolio and have all the hallmarks of an Enpro business. On a combined basis, we expect both businesses to achieve high single to low double-digit revenue growth rates at margins that meet or exceed our core. As well, we are excited to assist these talented teams to expand their reach and execute their respective growth strategies as they become part of our team to contribute to our value creation trajectory. Turning now to the Advanced Surface Technologies segment. Third quarter sales of $108.5 million were up 17.3% year-over-year. We saw an acceleration in certain areas of AST, including in precision cleaning solutions tied to advanced node chip production, supporting applications such as artificial intelligence and high-bandwidth memory.

However, demand for capital equipment remains choppy with pockets of strength observed for certain lower-margin semiconductor tools and assemblies during the quarter. For the third quarter, adjusted segment EBITDA increased more than 13% and adjusted segment EBITDA margin was 20.1%. Operating leverage on sales growth was offset primarily by increased operating expenses supporting growth initiatives and the mix impact of increased sales for certain semiconductor tools and assemblies. There are several factors underlying AST performance currently that we expect to continue into 2026. We see momentum in our advanced node-facing precision cleaning solutions business. Consistent with that, we are seeing accelerated time lines for leading -edge node production, which have caused the need for increased labor investment in both Taiwan and the United States to meet the qualification demands for our customers, well ahead of time as demand for advanced node chips accelerates.

These actions position us very well for growth into 2026 and beyond. At the same time, we are making considerable progress on new platforms and technological advancements for leading -edge processes in our pipeline, which is leading to additional qualification activities ahead of revenue generation and necessary to answer the exacting requirements of our customers. Semiconductor industry dynamics continue to evolve and regionalization of supply chains proceeds. In partnership with our customers, demand is shifting for certain legacy product lines from the United States to Southeast Asia. As we have mentioned before, we have expanded our capacity in that region over the past 2 years to support our customers on a number of platforms.

In connection with this demand shift, $12 million of equipment supporting legacy platforms or approximately 3% of total AST revenue was produced and sold year-to-date in 2025 ahead of these transitions, which we do not expect to recur in 2026. Finally, near-term demand dynamics continue to be choppy in the third quarter, which will continue in fourth quarter and into the first half of 2026. although we are seeing signs of capital spending supporting leading-edge semiconductor capacity expected to accelerate into the back half of next year. These signals of a significantly improved demand environment are supported by secular technology transitions, driving the need for more advanced logic, artificial intelligence and high-bandwidth memory capacity.

Over the mid and long term, our new platform pipeline remains robust and underscores our high single to low double-digit revenue growth expectations for the segment. Again, we expect segment margins can achieve 30% over time as new platforms begin to season from the investments we have made over the last 2 years. The market resumes a more consistent trajectory and continuous improvement initiatives take hold. Turning to the balance sheet and cash flow. Our balance sheet remains strong. At the end of the third quarter, our net leverage ratio stood at 1.2x trailing 12-month adjusted EBITDA.

Following the completion of the transactions announced in October, we expect to exit 2025 at a net leverage ratio of around 2x. We generated $105 million in free cash flow year-to-date versus $83 million last year. Higher net income and lower interest payments were the primary drivers of the year-over-year increase. Also, we continue to expect capital expenditures to be around $50 million this year as we invest in future growth opportunities across the company at accretive margin and return thresholds. Finally, our strong balance sheet and cash generation provide us with ample liquidity to make these investments while continuing to return capital to shareholders.

In the third quarter, we paid a $0.31 per share quarterly dividend with year-to-date payments totaling $19.7 million. We also have an outstanding $50 million share repurchase authorization expiring in October 2026. We are pleased with the consistent free cash flow generation and look to reinvest in organic growth opportunities across the business, while continuing to pursue strategic acquisitions that fit our rigorous financial objectives and expand our leading-edge capabilities.

Moving now to guidance. We are updating our previous full year 2025 guidance ranges to the high end and now expect total Enpro revenue growth of 7% to 8%, adjusted EBITDA in the range of $275 million to $280 million and adjusted diluted earnings per share to be in the range of $7.75 to $8.05 per share. The anticipated partial quarter contribution from the 2 acquisitions announced in October is included in this range. We previously expected revenue growth of 5% to 7%, adjusted EBITDA in the range of $270 million to $280 million and adjusted diluted earnings per share in the range of $7.60 to $8.10. The normalized tax rate used to calculate adjusted diluted earnings per share remains at 25% and fully diluted shares outstanding are currently 21.3 million.

As we shared in our October announcement, the contribution from the acquisitions of AlpHa and Overlook should contribute more than $60 million in revenue and $17 million to $18 million in adjusted EBITDA in 2026, all included in the Sealing Technologies segment. In Sealing, we continue to expect strong performance year-over-year in the fourth quarter. The end market drivers underlying our guidance ranges remain largely the same. We expect continued strength in aerospace and food and pharma markets and a firm domestic aftermarket in general industrial and commercial vehicle. The commercial vehicle OEM markets are expected to remain at a low point for the balance of the year.

We also expect slight variability in nuclear orders to continue based on near-term political uncertainty in France compared to our previous delivery schedules for the fourth quarter. In AST, we expect a sequential deceleration in sales growth for the fourth quarter, given the continued choppiness in overall semiconductor equipment spending, the previously mentioned regional transitions underway as well as the accelerating qualification work on new platforms ahead of revenue. Overall, for the year, we still expect Sealing segment profitability at the high end of our range of 30%, plus or minus 250 basis points, while AST segment profitability should finish slightly above 20% Total Enpro adjusted EBITDA margin is expected to finish 2025 above 24%. We are excited to continue executing our value-creating strategy into 2026 and beyond and look forward to our discussions with you all in future quarters. I will now turn the call back to Eric for closing comments.

Thanks, Joe. I'd like to thank our colleagues across Enpro for their inspiring work and dedication. We are also excited to welcome our new colleagues from AlpHa and Overlook to the organization. We are pleased with our performance so far in 2025 and are confident that we are taking the right steps to build on our Enpro 3.0 momentum. We are delivering on our growth targets for the first year of our strategy while empowering our team's personal and professional development and creating differentiated value for our customers and shareholders. Thank you for your interest in Enpro, and we now welcome your questions.

[Operator Instructions] Our first question comes from the line of Jeff Hammond with KeyBanc Capital Markets.

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?

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.

Actually, I'm going to introduce Mike Faulkner. Mike Faulkner leads our Sealing segment. And Mike was instrumental in both finding and acquiring these acquisitions and spend a lot of time with them, and he can speak about the adjacency and more about the strategy. Mike does an excellent job leading our Sealing Technologies segment and it's better to hear from him directly. So Mike, can you jump in?

Absolutely. Can you guys hear me okay? Okay. So Jeff, like other Enpro businesses, these are models in both that we know really well. Both Overlook and AlpHa have a high degree of recurring revenue that comes from strong, long-lasting customer relationships that are built on a track record of performance in critical applications. Overlook in particular, we are solving a problem that's worth solving in that large molecule liquid biologics pose unique processing problems for pharmaceutical manufacturers. And much like our other critical components, Overlook's design directly solves these problems in the fill/finish area and supports the growth and development of life-saving medicines. We see these as businesses that have the same characteristics of other winning businesses that we have within the segment.

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

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.

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?

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.

Yes. So we're excited about all of that work that we're doing, right? We're making good progress on both the cleaning side and our semiconductor capital equipment side. And we're accelerating qualification work on both, right? And so that's why you're seeing a little bit of an outsized impact right now. It impacted us about $3 million overall in the quarter for growth investments ahead of revenue. Those are expected to kind of start contributing in the middle to late part of next year, as Eric talked about, but positions us very well to capitalize on all of that advanced node work.

Specific to your question on the $12 million, Jeff, that's in the tools and assemblies part of the business. And that really is to support our customers in the shifting movement of that business from U.S. to Asia. And so that's for them to build some inventory and get ahead of that. So that's $12 million that's pulling out of 2026 into 2025 on mostly legacy kind of equipment areas. It was most pronounced in the third quarter, but it impacted in pull-ahead demand really in the second quarter and the third quarter of this year.

Yes. Some of that, Jeff, is the in-region for-region sourcing that's going on in the legacy stuff. Some of that's being moved to Asia to be more competitive.

Okay. Just back on incrementals. So as we get into '26 and you see some of these investments maybe normalize or the programs come online, like what should we think of as incrementals in that business into '26?

Yes. I mean we're not ready to talk and give specific guidance yet for '26, but just a broader theme question, right? I mean we've seen, as I just mentioned, roughly $3 million, and you can do the math on kind of what we would be without that. But as we start to move forward and leverage some of those costs, right, we would expect to build on top of that. So historically, our incrementals for this business are somewhere in the 40% range. And as we start to grow into these investments that we make, I mean, that's what we should expect going forward.

Our next question comes from the line of Steve Ferazani with Sidoti & Company.

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?

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.

Yes. So Steve, we didn't contemplate any margin expansion from any Enpro-related activities we'd be able to bring in that first 2026 full year as they become part of the company. But as we just said, right, there are opportunities there, right? There's margin expansion opportunities that we see not only from the growth, but also from continuous improvement, strategic pricing, et cetera, things that we've been so successful at in the past.

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?

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

Yes, absolutely. I'm happy to. Yes, I'm happy to. We're tremendously excited about the compositional analysis space. AMI has been a fantastic entry point for us. And with AlpHa, we're adding 8 liquid parameters that go along with the 4 gas analytes that we have with AMI. And what we really see it doing is a couple of things. For our customers, it's helping to accelerate the process of Industry 4.0, so that they can know something more about what's going on in their systems and in their processes that helps them operate at the peak of efficiency and reliability without sacrificing process safety.

The other thing it does for us because we're in a lot of these spaces already with different products and critical components that are going into to safeguard those processes. The information that comes off of this, the more we can understand and our customers can understand what's going through the process, the better we are at designing containment solutions to go along with it. And it kind of sounds simple, but whatever makes us better engineers makes us more invaluable to our customers. So we see the compositional analysis space as really being a great entry way into innovation for our critical component solutions.

Do you think there's more M&A opportunities in that area?

We definitely believe there's more M&A opportunities in this area, yes.

The other thing we're getting is 2 outstanding leadership teams. We picked up Saharra at Overlook and also Drew and their team at AlpHa . And those are outstanding leadership teams, will add to our talent as well. We're really excited about adding those folks to our team.

Excellent. That's great. We think about this was a slightly elevated CapEx year for you. You've talked about all the investments you're making. We know the growth opportunities with AST. Are you starting to think about CapEx for next year? Or are we too early? Are there continued investments that are going to be made into 2026 on the CapEx side on what we think is really strong growth over the next 5 years?

Yes. I mean, Steve, we're not ready to give a specific number yet for 2026. I mean we'll do that when we talk in February. But I think we're going to be in this range for a couple of years now in this kind of 3.5% to 4.5% of sales. I mean we continue to have good, strong areas of organic growth opportunity, and we're excited to invest behind them in both businesses.

I mean, Eric talked about a few of them in Sealing, in aerospace, space, commercial vehicle for new platform innovation. These are all areas that are continuing to add to our Sealing growth algorithm. And then in AST, right, they're plentiful with what we're doing in Singapore, Taiwan, the U.S., continued build-out of next phases of Arizona. So we expect to continue to be in this range as long as we have a consistent pipeline of organic growth areas to invest in.

Can you talk about your outlook now for -- I know nuclear and commercial space were big contributors this year, nuclear, not so much this quarter, but that sounds like a timing issue. Can you talk about your positioning in those 2 markets?

Yes, we're still really excited about it. I can give you a little bit of a specific example. Brad Lodge leads our Technetics Group and they launched what they call Mission One. That's a couple of space companies that are doing some exciting work and recently challenged us with getting some new parts and new production up and out as quick as possible.

And speed is very, very important because they're moving so fast. We are actually able to purchase equipment getting in place and produce new parts in 9 weeks, which is crazy. Usually, the thing is 26 weeks just to get material. But to be producing good parts in 9 weeks and ramping up production in that part of time is crazy fast. That team is doing outstanding, and those days are going to get better and better. So we're excited about our nuclear business and our space business.

[Operator Instructions] Our next question comes from the line of Ian Zaffino with Oppenheimer & Company.

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?

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.

Also, the new stuff coming online is vertically integrated. The legacy stuff is not. So it's just precision machining, and that doesn't have the same margin profile as the stuff coming. So the stuff that's coming has still in qualification before revenue, but that will also help as we go forward.

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?

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.

At the margin, when we see certain containment solutions on small modular reactors or new capacity, there's a general trend for those customers to come to us for certain containment solutions over time.

Okay. And just as a follow-up, does it matter if it's like an SMR or a larger like an AP1000 or anything like that? Does that matter and how that market kind of forms as it relates to Enpro in general?

Not really. The difference is, of course, the size of the sales is a little smaller. So it's not as large of a volume, but there's also more of. So not really -- I wouldn't say it has any significant impact just as the industry grows, we'll grow with it.

Ladies and gentlemen that concludes our question-and-answer session. I'll turn the floor back to Mr. Gentile for any final comments.

As you heard, I mean, it's such a pleasure to again report solid results. The energy around the organization is exciting. We're investing in a number of growth opportunities across the company, and we're excited to update you in February when we report Q4 and our perspectives for 2026.

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