Q2 2025 Enpro Inc Earnings Call
Daryl: Greetings. Welcome to the Enpro Second Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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.
Joe Bruderek: Thanks, Daryl, and good morning, everyone. Welcome to Enpro's Second Quarter 2025 Earnings Conference Call. I will 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 Joe Bruderek, Executive Vice President and Chief Financial Officer. During today'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 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.
Greetings, welcome to the npro second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to James Chantilly, and vice president investor relations. Thank you. You may begin.
Thanks, Daryl and good morning, everyone. Welcome to nro's second quarter 2025 earnings conference call. I will remind you that our call is being webcast at mro.com, where you can find the presentation that enco accompanies this call.
With me today is Eric, Vaillancourt our president and chief executive officer and Joe Broderick Executive Vice President and Chief Financial Officer.
Joe Bruderek: Also note that during this call, we will be providing full-year 2025 guidance, which excludes unforeseen impacts from these risks and uncertainties. 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?
During today's call, we reference a number of non-gaap financial measures tables, reconciling, the historical non-gaap measures to the comparable, gaap measures, or included, the appendix to the presentation materials. Also a friendly reminder that we will be making statements on this call. That are not historical facts and that are considered forward-looking in nature. These statements involve a number of risks and uncertainties including those described in our filings with the SEC.
5 Gardens, which excludes unforeseen impacts from these risks and uncertainties, we do not undertake any obligation to update these forward-looking statements.
Eric Vaillancourt: Thanks, James, and good morning, everyone. We appreciate your interest in Enpro Inc. as we discuss second quarter financial results and our improved sales and earnings outlook for the full year 2025. Now on to our second quarter performance. After my overview, Joe will provide a more detailed discussion of our quarterly results and perspectives driving our improved outlook for the balance of 2025. Enpro Inc. delivered another strong quarter, demonstrating the resilience of our business while continuing to invest in growth with discipline. We grew organic sales 6% in the second quarter, driven by 14.5% revenue growth in Advanced Surface Technologies and continued top-line growth in Sealing Technologies, despite the difficult comparison to last year that we discussed last quarter.
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. We appreciate your interest in nro as we discuss second quarter Financial results and our improved sales and earnings outlook for the full year, 2025
Nan. Now on to our second quarter performance, after my overview you will provide a more detailed discussion of our quarterly results and perspectives driving our improved outlook for the balance of 2025.
Andro delivered, another strong quarter demonstrating the resilience of our business. While continuing to invest in growth with discipline, we have your organic sales 6% in the second quarter driven by 14 and 1.5% Revenue growth in as and continue. Topline growth in caling Technologies.
Eric Vaillancourt: In Sealing Technologies, sales increased about 2%, driven by strength in aerospace and food and pharma markets, firm general industrial markets, and strategic pricing initiatives more than offsetting continued weakness in commercial vehicle OEM demand. Timing of nuclear orders also impacted year-over-year performance. Adjusted segment EBITDA margin approached 34% for the quarter. We continue to identify opportunities for incremental growth throughout the Sealing Technologies segment and are focused on expanding our market reach by leveraging our differentiated technological capabilities and applied engineering expertise. We are focused on capturing opportunities in key markets such as aerospace, sustainable power generation, including nuclear, food and pharma, and compositional analysis, where our differentiated capabilities can drive long-term profitable growth. We continue to invest in incremental capacity expansions, supporting new platforms and enhanced strategic marketing and engineering capabilities to position the segment to deliver on our targeted mid-single-digit organic revenue growth rate.
Despite the difficult comparisons of last year that we discussed last quarter.
In sealing Technologies, sales increased about 2% driven by strength and Aerospace and food and farmer markets. Firm, General industrial markets and strategic pricing initiatives more than offset more than offset and continued weakness in commercial vehicle OEM demand
Timing of nuclear orders. Also impacted year-over-year performance.
Adjusted segment, EA margin approached 34% for the quarter.
We continue to identify opportunities for incremental growth throughout the sealing technology segment and are focused on expanding our Market reach by leveraging, our differentiated technological capabilities and applied engineering expertise.
We are focused on capturing.
Our we are focused on capturing opportunities. In key markets such as Aerospace, sustainable power generation, including nuclear food and Pharma and compositional Analysis, where our differentiated capabilities can drive long-term profitable growth,
Eric Vaillancourt: More than 60% of the segment's revenue is tied to the aftermarket, with specified positions providing critical process and safety functions for our customers. We continue to be delighted with the best-in-class performance of the Sealing Technologies segment, which we expect to perform well in a variety of macroeconomic environments. In the Advanced Surface Technologies segment, sales increased more than 14%, led by growth in leading-edge precision cleaning solutions, optical coatings, and improved demand for in-chamber semiconductor tools and assemblies. Operating expenses supporting growth in new platforms and transactional foreign exchange headwinds crimped operating leverage during Q2, which Joe will discuss later. We continue to make targeted organic investments at AST and expect execution of our growth and optimization plan to drive high single to low double-digit revenue growth with improved profitability over time.
We continue to invest in incremental capacity, expansions supporting new platforms and enhanced strategic marketing, and Engineering capabilities to position. The segment to deliver on our targeted mid single digit, organic Revenue growth rate.
More than 60% of the segments revenue is tied to the aftermarket, with specified positions, providing critical process and safety functions for our customers.
We continue to be delighted with the best-in-class performance of their sealing technology segment which we expect to perform well in a variety of macroeconomic environments.
In the advanced surface, technology segment sales increased more than 14%.
Led by growth and Leading Edge, Precision, Cleaning Solutions, Optical Optical Coatings and improved demand for inch chamber. Semiconductor tools and assemblies.
Operating expenses supporting growth and new platforms and transactional. Foreign exchange, headwinds crimped operating leverage during Q2 which Joel will discuss later.
We continue to make targeted, organic Investments at as and expect.
Eric Vaillancourt: We continue to believe that this segment can generate 30% adjusted EBITDA margins, again, over time as growth programs and optimization playbooks are implemented. Our balance sheet remains in excellent shape. Increased capacity from our recent debt finance refinancing activities, along with consistently strong free cash flow generation, provide us with ample flexibility to execute on our forward growth strategy while pursuing strategic acquisitions that meet our rigorous strategic and financial criteria. Our colleagues across the organization are empowered as we embark on the first year of Enpro 3.0, our multi-year strategy for the next chapter of the company's evolution. With Enpro 3.0, we are accelerating both personal and profitable growth. In our view, these goals are equally important and inextricably linked. At the halfway point here in 2025, our teams are motivated with individual development plans in hand that drive their own personal and professional growth.
Execution of our growth and optimization plan to drive high single, to load, double digit, Revenue growth with improved profitability over time.
We continue to believe that this segment can generate 30% adjusted, even emergence again over time as growth programs and optimization playbooks are implemented.
Our balance sheet remains, an excellent shape increase capacity from our recent debt Finance refinancing activities.
Along with consistently strong free, cash flow generation, provide us with ample flexibility to execute on our forward. Growth strategy while pursuing strategic Acquisitions that meet our rigorous strategic and financial criteria.
Our colleagues across the organisation are empowered as we embark on the first year of empro 3.0, our multi-year strategy, for the next chapter of the company's evolution.
With enpro 3.0. We are accelerating both personal and profitable growth.
Eric Vaillancourt: We are tasking our employees to chart their own development paths, to pursue courses to expand their work knowledge in areas that inspire and build business acumen, engage in helpful activities, and practice awareness, problem-solving, and communication techniques that enable our colleagues to grow and thrive within and outside of our organization. I would like to thank our colleagues across Enpro who embrace our way of working and partner with our customers to solve important processing problems using our technological capabilities and applied engineering expertise. Developing relationships of trust and reliability with our customers enable us to continue producing exceptional results. There has never been a better part of Enpro. I will now pass the call over to Joe to discuss our quarterly results in greater detail and discuss the drivers of our improved outlook for the balance of the year. Joe?
In our view, these goals are equally important and annexed inextricably linked at the halfway point. Here in 2025, our teams are motivated with individual development plans in hand that drive their own personal and professional growth.
We are tasking our employees to chart. Their own development paths to pursue courses, to expand their work knowledge in areas that Inspire and build business Acumen. Engage in healthful activities and practice, awareness problem solving, and communication techniques that enable our colleagues to grow and Thrive within and outside of our organization.
Developing relationships with trust and reliability with our customers enable us to continue producing exceptional results.
There has never been a better part of the, a part of enpro.
Joe Bruderek: Thank you, Eric, and good morning, everyone. To the halfway mark of 2025, we have delivered strong results, and our improved outlook for the year reflects the differentiation of our products and solutions, technology leadership, and process know-how, customer intimacy, as well as the balance inherent in the Enpro portfolio. Turning to our results for the second quarter, sales of $288.1 million increased 6%, driven by continued strong performance in the Sealing Technologies segment and a 14.5% increase in AST. Second quarter adjusted EBITDA of $71.1 million, declined 3.9% year over year. Total company adjusted EBITDA margin was 24.7%. Increased operating expenses supporting growth, transactional foreign exchange headwinds, which I will discuss in a moment, and increased incentive compensation accruals drove the slight year-on-year decline in total adjusted EBITDA.
I will now pass the call over to Joe to discuss our quarterly results in Greater detail and discuss. The drivers of our improved outlook for the balance of the Year, Joe.
Thank you, Eric and good morning everyone. To the halfway mark of 2025. We have delivered strong results in our improved outlook for the year, reflects the differentiation of our products and solutions, technology, leadership, and process know-how customer intimacy as well as the balance inherent in the end Pro portfolio.
Turning to our results. For the second quarter sales of 288.1 million, increased 6% driven by continued strong performance in the sealing technology segment and a 14.5% increase in ASD.
second quarter adjusted, Eva Dove 71.1 million declined, 3.9% year-over-year
To company adjusted ebata margin was 24.7%.
Increased operating expenses supporting growth.
Joe Bruderek: Corporate expenses of $12.1 million in the second quarter of 2025 increased from $10.5 million a year ago, driven primarily by higher incentive compensation accruals and increased health insurance costs. Adjusted diluted earnings per share of $2.03 decreased slightly from $2.08 last year, primarily driven by the factors behind adjusted EBITDA performance in the quarter. Moving to a discussion of segment performance, Sealing Technologies sales increased 1.9% to $187.5 million. Strength in aerospace and food and pharma applications, firm general industrial performance and strategic pricing more than offset continued slow commercial vehicle OEM demand and mix associated with timing of nuclear orders compared to last year. For the second quarter, adjusted segment EBITDA margin was 33.8%, down from last year's high watermark of 35.5%. Sequentially, Sealing segment margin expanded 110 basis points.
Transactional, foreign exchange headwinds which I will discuss in a moment and increased incentive compensation approvals, drove the slight year-on-year decline in total adjusted Ava.
Corporate expenses of 12.1 million in the second quarter of 2025 increased from 10.5 million. A year ago, different primarily by higher incentive, compensation approvals and increased health insurance costs
Adjusted diluted earnings per share of $2.33 decreased slightly from 28 cents last year, primarily driven by the factors behind adjusted EV do performance in the quarter.
moving to a discussion of segment performance, sealing technology sales increased 1.9% to 187.5 million
strengthened Aerospace and food and farming applications firm, General industrial performance and strategic pricing more than offset continued slow, commercial vehicle, OEM demand and mix associated with timing of nuclear orders compared to last year.
For the second quarter, adjusted segment ebit that margin was 33.8%.
Down from last year's high water, mark of 35.5%.
Joe Bruderek: Continued demand weakness in commercial vehicle OEM markets, timing of nuclear orders year over year, as well as $1.9 million of transactional foreign exchange headwinds, given the weakening of the U.S. dollar, were the primary factors affecting segment profitability during the second quarter. We are very pleased with the first half performance in Sealing, with adjusted segment EBITDA margin exceeding 33% through June. We expect solid performance to continue as our teams focus on adjacent market expansion and incremental capacity investments, as well as continued value pricing, 80/20, and cost discipline. Turning now to Advanced Surface Technologies. Second quarter sales increased 14.5% year over year to $100.9 million. While overall semiconductor capital equipment spending remains choppy, we saw continued growth in leading-edge precision cleaning solutions and in optical coatings, in addition to improved demand for certain in-chamber semiconductor tools and assemblies.
Sequentially. Sealing segment margin expanded 110, basis points.
Continued demand, weakness, and Commercial Vehicle. OEM markets timing of nuclear orders year-over-year as well as 1.9 million of transactional. Foreign Exchange headwinds given the weakening of the US dollar, where the primary factors affecting segment profitability during the second quarter.
We are very pleased with the first half performance and ceiling.
With adjusted segment. Eva margin exceeding, 33% through June.
We expect solid performance to continue as our teams focus on adjacent Market expansion and incremental capacity Investments as well as continued value pricing 80/20 and cost discipline.
Turning now to Advanced Surface Technologies.
Second quarter, sales increased 14.5% year-over-year to 100.9 million.
While over SE while overall semiconductor Capital Equipment spending remains choppy, we saw a continued growth in Leading Edge, Precision, Cleaning Solutions and an optical coatings.
Joe Bruderek: For the second quarter, adjusted segment EBITDA increased nearly 4%. Adjusted segment EBITDA margin was 19.6% versus 21.7% last year. Operating leverage was absorbed during the quarter, primarily due to $2.5 million of higher operating expenses supporting future growth initiatives and transactional foreign exchange headwinds totaling $2.8 million. In the first half of 2025, AST's adjusted segment EBITDA margin was 20.7%, with increased operating expenses supporting growth programs totaling $4.3 million and $3 million of unfavorable transaction FX. As Eric noted, we continue to make targeted growth investments in areas where we have the strongest competitive advantages, while implementing our continuous improvement playbooks to drive enhanced profitability and achieve our longer-term goals for AST segment performance. Turning to the balance sheet and cash flow.
In addition to improved demand for certain in chamber for Semiconductor tools and assemblies.
For the second quarter adjusted segment, EBA increased nearly 4%.
Adjusted segment e without margin was 19.6% versus 21.7% last year.
Operating leverage was absorbed during the quarter primarily, due to 2.5 million of higher operating expenses, supporting future growth initiatives and transactional foreign exchange, headwinds, totaling 2.8 million.
In the first half of 2025 as is adjusting segment. EBA margin was 20.7%
With increased operating expenses supporting growth programs totaling $4.3 million, and $3 million in unfavorable transaction foreign exchange.
As Eric noted, we continue to make targeted growth investments in areas where we have the strongest competitive advantages.
By implementing our continuous Improvement, playbooks to drive enhanced profitability and a longer term goals for as segment performance.
Joe Bruderek: Our balance sheet remains strong, and we have ample financial flexibility to execute on our long-term organic growth initiatives while considering select acquisitions that fit our rigorous strategic and financial objectives without the use of excess leverage. On May 29th, 2025, we successfully completed an offering of $450 million of 6.8% senior notes due in 2033. A portion of the net proceeds of the newly issued senior notes was used to fully redeem the outstanding $350 million of 5.75% senior notes due 2026. In addition, we completed an amendment to our credit agreement on April 9th, which doubled the size of our revolving credit facility to $800 million. On June 30th, revolver capacity was $770 million.
Turning 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. While considering select Acquisitions that fit our rigorous strategic and financial objectives without the use of excess Leverage.
We successfully completed an offering of $450 million of 6 and 1/8 percent senior notes due in 2033.
A portion of the, net proceeds of the newly issued, senior notes was used to fully redeem, the outstanding 350 million of 5 and 3/4 percent senior notes, due to 2026.
In addition, we completed an an amendment to our credit agreement on April 9th, which doubled the size of our revolving credit facility to 800 million?
Joe Bruderek: As a result of these refinancing and debt repayment actions, we now expect lower net interest expense of $26 million to $28 million for 2025 versus our previous expectation of $34 million to $36 million. We ended the second quarter with net debt of $364 million, resulting in a net leverage ratio of 1.4 times trailing 12-month adjusted EBITDA. Pre-cash flow in the six months ended June 30th was $52.8 million versus $35.5 million last year. Higher net income driven by strong operating performance, working capital management, and lower cash interest expense were the primary drivers of free cash flow growth. We continue to expect capital expenditures to be around $50 million this year as we invest in future growth opportunities across the company at a creative margin and return thresholds.
On June 30th, revolve our capacity was 7770 million.
As a result of these refinancing and debt repayment actions. We now expect lower net interest, expense of 26 million to 28 million for 2025
versus our previous expectation of 34 to 36 million.
We ended the second quarter with net debt of 364 million, resulting in a net leverage ratio of 1.4 times trailing 12-month adjusted Ava.
Free cash flow in the 6 months. Ended June 30th was 52.8 Million versus 35.5 Million last year.
Higher net income driven by strong operating performance, working Capital Management and lower cash, interest expense where the primary drivers of free cash flow growth.
Joe Bruderek: 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 $0.31 per share quarterly dividend, with year-to-date payments totaling $13.2 million. We also have an outstanding $50 million share repurchase authorization expiring in October 2026. Turning now to guidance. We are raising full-year 2025 guidance and now expect Enpro Inc. sales growth to be between 5% and 7% versus our previous expectation of low to mid-single-digit revenue growth. Based on our better sales outlook, we now expect 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. Previously, we expected adjusted EBITDA in the range of $262 million to $277 million and adjusted diluted earnings per share of $7 to $7.70.
We continue to expect capital expenditures to be around fionn dollars this year, as we invest in future growth opportunities across the company at a creative 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 second quarter, we paid a 31 cents per share quarterly dividend with year-to-date payments totaling 13.2 million.
We also have an outstanding 50 million share repurchase authorization expiring in October 2026.
Turning now to the guidance, we are raising full year 2025 guidance and now expect and Pro Sales growth to be between 5 and 7%.
Versus our previous expectation of low to mid single digit Revenue growth.
Based on our better sales Outlook. We now, expect adjusted Evita in the range of 270 million to 280 million.
And adjusted diluted earnings per share in the range of 7.60 to 8.10.
Joe Bruderek: The normalized tax rate used to calculate adjusted diluted earnings per share remains at 25%, and fully diluted shares outstanding are 21.2 million. The primary factors driving our increased guidance ranges are a stronger outlook for aerospace applications, continued strength in food and biopharma markets, and slightly improved orders in general industrial markets and Sealing Technologies. We continue to expect weak commercial vehicle OEM demand for the remainder of this year in the STEMCO segment.
Previously, we expected adjusted ebit on the range of 262 million to 277 million and adjusted diluted earnings per share of $7 to $7.70.
The normalized tax rate used to calculate adjusted diluted earnings per share remains at 25%.
And fully diluted shares, outstanding are 21.2 million.
The primary factors driving our increased guidance, ranges are a stronger outlook for Aerospace applications.
Continued strength in food and bioharmony.
Joe Bruderek: Altogether, we expect STEMCO to show top-line growth in the mid-single-digit range for the year, with segment profitability remaining at the high end of our previously communicated range of 30% plus or minus 250 basis points. In Advanced Surface Technologies, incrementally better demand for in-chamber semiconductor tools and assemblies, and continued strength in leading-edge precision cleaning solutions are now expected to drive Advanced Surface Technologies sales growth in the high single to low double-digit range year over year. Despite continued investments supporting growth programs and transaction FX headwinds, we expect full-year Advanced Surface Technologies segment profitability to again exceed 20%. Tariff exposures remain minimal and manageable as we move into the second half. Our supply chain teams are executing with agility and resilience, well-prepared to perform in a variety of macroeconomic environments. I will now turn the call back to Eric for closing comments.
we continue to expect weak commercial vehicle, OEM demand for the remainder of this year in this segment,
Altogether. We expect sealing to show Topline growth in the mid single digit range for the year with segment. Profitability remaining at the high end of our previously communicated range of 30% plus or minus 250 basis points.
In as incrementally, better demand for in chamber, semiconductor tools and assemblies and continued strength in Leading Edge, Precision, Cleaning Solutions are now expected to drive as sales growth in the high single to low double-digit range year-over-year.
To Investments supporting growth programs and transaction FX. Headwinds. We expect fully your as segment profitability to again, exceed 20%.
Tariff, exposures remain minimal and manageable as we move into the second half.
Our supply chain teams are executing with agility and resilience.
Well-prepared to perform in a variety of macroeconomic environments.
Eric Vaillancourt: Thank you, Joe. We are eager to continue demonstrating our leading-edge capabilities and differentiated products and solutions that deliver significant value to our customers and drive long-term profitable growth. Our development programs that encourage our colleagues to grow both personally and professionally in the early days of Enpro 3.0 will help unlock the full potential of our team to advance our strategy and create value for all stakeholders. I would like to thank our shareholders for their support as we embark on the next phase of our value-creating strategy, Enpro 3.0. Thank you for your interest in Enpro, and we will now welcome your questions.
I will now turn the call back to Eric for closing comments.
Thank you. Joe, we are eager to continue demonstrating our Leading Edge capabilities and differentiated products, and solutions, that deliver significant value to our customers and drive long-term profitable growth.
Our development programs that encourage our colleagues to grow both personally and professionally and early days. Vro 3.0 will help unlock the full potential of our team to advance our strategy, and create value for all stakeholders.
I would like to thank our shareholders for their support because we embark on the next phase of our value, creating strategy and pro 3.0.
Thank you for your interest in nro and we'll now welcome your questions.
Daryl: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions. Our first questions come from the line of Jeff Hammond with KeyBanc Capital Markets. Please proceed with your questions.
Anybody press star 2. If you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset, before pressing, the star Keys 1 moment, please while we pull for your questions.
Jeff Hammond: Hey, good morning, everyone.
Our first question has come from the line of Jeff Hammond with keybanc capital markets, please proceed with your questions.
Eric Vaillancourt: Morning Jeff.
Joe Bruderek: Morning Jeff.
Hey, good morning, everyone.
Jeff Hammond: Hey, I am sorry, I missed the FX transaction headwind in Sealing Technologies. Then just, you know, on the nuclear, is that just a goodness that was there last year or was there timing between quarters this year as well?
Joe Bruderek: Yeah, Jeff, this is Joe. For the nuclear answer, it is both, right? Last year's Q2 was a very, very strong nuclear quarter. We had a series of timing of orders for replacement cycles. This year, we kind of had the opposite effect. Q1 was very strong. Q2, we saw some timing just between Q1 and Q3. So that is really a timing issue on nuclear. Underlying demand is very strong. On the transactional FX, the impact we are feeling here is in transactions that are in non-functional currency denominations. We pointed to it most predominantly in Advanced Surface Technologies, where we had $2.6 million in the quarter. Most of that impact is in Taiwan, where we are U.S. dollar functional, but we have certain local expenses that are in Taiwanese dollars. So predominantly salary and benefits, lease obligations, and liabilities attached to income tax.
Hi. Jeff morning Jeff Jeff. Hey, I'm sorry, I missed the FX trans transaction headwind in ceiling and then just, you know, on the on the new clear is that just a goodness that was there last year? Was their timing between quarters, uh, this year as well.
Yeah, Jeff this is Joe for for the nuclear um answer. It's both right. Any last year, second quarter was a very, very strong nuclear quarter. Um, we had a, a series of timing of of orders for for replacement Cycles. Um, and then this year, uh we kind of had the opposite Effect. 1 Q was very strong second quarter. We saw some timing just between 1 q and 3 Q. So it's really a timing issue on nuclear. Um underlying demand is very strong uh on the on the transactional FX. So the impact we're feeling here is in transactions that are in uh non-functional current currency denominations. So you know, we pointed to it most predominantly in as
Um, where we had 2.6 million dollars in the quarter, most most of that impact is in Taiwan.
Joe Bruderek: The impact was less in Sealing Technologies, but we had a similar effect, right? With the weakening dollar overall, anywhere ranging from 5% to 12% depending on the alternate currency, where we had expenses and liabilities tied to local currencies that were not U.S. dollar functional is where we felt that impact.
Um, where we're US dollar functional, but we have certain local expenses that are in Taiwanese dollars. So, predominantly salary and benefits uh lease obligations and you know liabilities attached to income tax.
The, the impact was the last in ceiling, but we had a similar effect, right? With the weakening dollar overall, you know, and you where range from 5 to 12 percent depending on the alternate currency, uh, you know, where we had expenses and liabilities tied to,
Daryl: It was $1.9 million in Sealing Technologies.
Local currencies that were not us, dominant US dollar. Functional is where we felt that impact.
Jeff Hammond: Yeah. Okay.
And in sealing, it was 1.9 million.
Joe Bruderek: Yeah, I mean, back on AST a little bit, Jeff, we, you know, obviously we felt the impact of FX on margins year over year in AST, and we pointed to the $2.5 million of growth investments there that we are making in OpEx tied to, you know, critical areas where we are investing with growth behind growth. If you just took out the FX piece of roughly, you know, $2.8 million year over year, AST segment margins would be in the mid-22% range. Then you see the growth investment expense around OpEx impacting us by another 2.5% roughly. So you can see the underlying performance of AST from an operational perspective, which we are quite happy with at the moment.
Okay. Yeah. I mean in back on as a little
With Jeff. I mean, we, you know, obviously we felt the impact of of FX on margins year-over-year in in as um, and we pointed to the 2 and a half million dollars of of growth Investments there that we're making an Opex tied to, you know, critical areas where we're investing with growth behind growth.
If you just took out the FX piece of of roughly, you know, 2.8 million dollars a year over year, right? As segments margins, would be in the mid 22% range and then you, you you see the growth investment expense, uh, around Opex impacting Us by 2, another 2 and a half percent roughly. So you can see the underlying performance of a
Jeff Hammond: Yeah, that's what I wanted to come back to. How should we think about incremental margins in Advanced Surface Technologies into the second half? Do these FX headwinds, is that kind of one time to the quarter? Do they stay with us for a bit? Thanks.
Um, from an operational perspective, which we're we're quite happy with at the moment.
Yeah, that's what I wanted to come back to. So, how should we think about incremental margins in a into the second half and and do these FX
Joe Bruderek: Yeah, for the most part, the FX headwinds were impacted by the significant weakening of the U.S. dollar in the second quarter. We do not expect that to continue, especially not in the magnitude that we saw in Q2 based on the revaluation of the payment out of liabilities. But Advanced Surface Technologies should continue to leverage pretty well going forward. We have invested in key growth areas behind geographical expansion, technology differentiation in different areas, including Arizona, Milpitas, and Taiwan. We have put in people expenses, OpEx associated with that. As revenue comes associated with those growth investments, it should leverage pretty well as we move into the second half of this year and into the next.
You know, headwinds is is that kind of 1 time to the quarter? Do they do, they stay with us for but thanks. Yeah, for the most part, the FX headwinds were uh, impacted by the significant weakening of the US dollar in the second quarter. So we don't expect that continue especially not in the in the magnitude that we saw in 2q, based on the revaluation of the, the payment out of of liabilities. Um, but as should continue to leverage pretty well going forward. I mean, we've invested in key growth areas behind geographical expansion technology differentiation and different areas including Arizona, Milpitas and Taiwan. Um and you know, we've put in people expenses Opex associated with that. So as Revenue comes associated with those.
Jeff Hammond: Okay, and then just the last one. Sealing, I guess the inflection or improvement in Advanced Surface Technologies was pretty apparent, and I understand the guide up there. Sealing, what is driving the better growth rate into the second half? You know, I think you said mid-single digits, you are now thinking for that business. Thanks.
those, um, those growth Investments, it should leverage pretty well as we move into the second half of this year and and into into the next
okay, and then just last 1, um,
Ceiling. I, I guess the, the inflection or, or impermanent, as was pretty apparent. And, and I understand the guide up there, um, ceiling, what's what's driving the? The better growth rate into the second half.
Eric Vaillancourt: Yeah, Jeff, there's a bunch of good things going on in Sealing. We have some new programs and customer wins, specifically an OEM commercial truck with our AutoTorque product that we talked about several times in the past. We're starting to win more and more customer business there with the large OEMs that'll transition to aftermarket over a period of time. In addition to that, our efforts in space, we picked up some significant wins with a few new customers in the last quarter that'll start to show up in that balance at the end of this year that are going to require a little bit more investment for us that we've already planned for. They're all exciting opportunities, and that business is growing rapidly. It's really got a good future ahead of us. That's leading to the guidance and proof. In addition, markets are still pretty strong.
Um, you know, I think you said mid single digits. You're now thinking for for that business. Thanks.
Eric Vaillancourt: If you look across our general industrial, we're still our book to build strong. Our backlog is strong. We're excited about the second half of the year. A lot of good things are happening. We continue to focus on execution and execute extremely well. We control the things we can control. Life is good at Enpro Inc.
That'll start to show up and I balance at the end of this year that are going going to require a little bit more investment for us that we've already planned for, but they're all exciting opportunities in that business is growing rapidly. It's really got a good future ahead of us. So that's leading to the guidance to improve in addition, markets are still pretty strong. Um, if you look across our general industrial, we're still our book to build strong. Our backlog is strong and so we're excited about the second half of the year, but a lot of good things are happening.
Jeff Hammond: Great. Thanks for the call, guys.
We can continue to focus on execution and execute extremely well and we control the things we can control and life is good and Pro.
Great. Thanks for the call, guys.
Daryl: Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next questions come from the line of Steve Ferazani with Sidoti & Company. Please proceed with your questions.
Thank you as a reminder, if you would like to ask a question. Please press star 1 on your telephone keypad.
Our next questions come from the line of Steve forzani with sidonian company, please proceed with your questions.
Jeff Hammond: Morning, everyone. Appreciate the detail on the call. I just wanted to ask about the raise, since you talked about the raised ceiling expectations, turn over to the raised Advanced Surface Technologies expectations. You were talking now potentially low double-digit growth this year, which would indicate pretty strong second half growth. Is that an extension of what you were seeing in Q2, or you could talk a little bit about what you are seeing second half for Advanced Surface Technologies?
Morning everyone. Appreciate the detail on the call. Um, just wanted to ask about the the the Rays that you talked about the raised ceiling expectations. Turn over to the, the raised as expectations. You were talking now potentially low double digit growth this year, which would which would indicate
Pretty strong second half growth. Is that an extension of what you were seeing in Q2? Or could you talk a little bit about what you're seeing in the second half for EST?
Eric Vaillancourt: Second half Advanced Surface Technologies, we have a lot of investment that has gone on in the past. We are starting to get a little bit of that coming in now. As we said earlier, Joe Bruderek mentioned we have investments both in Arizona, Milpitas, California, and Taiwan that are all coming on, along with Singapore. So we are getting a little bit of benefit from that that will accelerate over time. In addition, I would say a little bit of market recovery, although I would not say it is significant. It is still very choppy in that regard. But overall, business is healthy and getting better.
Second half ASD, we have a lot of investment that's gone on, in the past, we're starting to get a little bit of that coming in now, as we said earlier, Joe mentioned, we have Investments both in Arizona and alpita California, and, um, Taiwan that are all coming out along with Singapore. So, we're getting a little bit of benefit from that, that'll accelerate over time, in addition. Okay, A little bit of Market recovery, although I wouldn't say it's significant, it's still very choppy in that regard. But overall, the business is healthy and getting better.
Jeff Hammond: Where are you in the Advanced Surface Technologies? I know you're going through a lengthy certification process. Is that generating material revenue now? What's, could you give any kind of indication of the ramp on that this year?
Eric Vaillancourt: I wouldn't say it's generating material revenue. We're still in the testing phase, if you will, and certification phase. That continues.
Uh, where are you in the Arizona? I know you're going through a lengthy certification process. Is that generating material Revenue now and what's can you give any kind of indication of the ramp on that this year?
Wednesday with the generating material Revenue. We're still on the okay.
Joe Bruderek: Yeah, I would add, Steve, you know, we are, like Eric mentioned, we are, you know, in the qualification phase, which is going very well in Arizona. But we are supporting a little bit from Milpitas as well. So in areas where we have spent the time in the past to demonstrate our capabilities in Milpitas and have the ability to be qualified and fully support our customers there, you know, some of the early revenue from customer locations in Arizona is being qualified and supported with test volumes in Arizona, but also we have the ability to supplement from Milpitas. So that is supporting some of the revenue growth that we have seen as well.
Um testing phase if you will and certification phase and that contains. Yeah.
Yeah, it adds Steve. You know we're like Eric mentioned we're
You know, in the qualification phase, which is going very well in Arizona, but we are supporting a little bit from Milpas as well. So in areas where we have,
Jeff Hammond: Got it. I did want to ask about one comment you made in terms of Sealing Technologies growth. You mentioned compositional analysis. I know that comes out of the AMI acquisition from last year. Are you seeing any successes there lately? Can you sort of talk about how that market is developing for you since that acquisition?
Uh spent the time in the past to demonstrate our capabilities, in malpas and have the ability to be qualified and fully support our customers. There. You know, some of the early revenue from customer locations. In Arizona is being qualified and supported with test volumes in Arizona. But also we have the ability to supplement from from mpeda. So that's supporting some of the revenue growth that we've seen as well.
Eric Vaillancourt: has been outstanding. Yeah, they continue to exceed our growth expectations with both new customers and existing. That business just hit a home run. Outstanding leadership by Kevin out there.
Got it. I did want to ask about 1 comment you made on terms of of sealing growth. You mentioned compositional analysis. I know that comes out of the Ami acquisition from last year. Are you seeing any successes there yesterday? Yeah. Lately. Can you can you sort of talk about how that market is developing for you since that acquisition?
Joe Bruderek: Yeah, we're also investing in additional capacity expansion and new capabilities within AMI. So, not only are we delivering on our existing capabilities and technologies, but there's more coming, right, with additional capacity and new technologies and new products that the team is launching.
It's been outstanding. Yeah, they continue to have exceed our growth expectations with both new customers and existing. That business has been a home run outstanding leadership by Kevin out there.
Yeah, we're also investing in additional capacity expansion and new capabilities in within Ami. Um, so you know, not only we did um, delivering on our existing capabilities and Technologies but there's more coming right with additional
Eric Vaillancourt: They have outgrown the space they are in. They will be moving into a new building later this year.
Jeff Hammond: Yeah, excellent. If I could just ask about, oh, go ahead. Go ahead.
Uh, capacity and new technologies and new products that the team is launching. Yeah, they've outgrown the space. They're in they'll be moving into a new building later this year. Yeah.
Excellent. Uh, and if I could
Eric Vaillancourt: I was just going to say, we are talking about Sealing, and I want to just point out that that was our second best quarter ever in Sealing. So although it was a difficult comparable last year, it is still our second best quarter ever. And I think it is going to be better in the future.
If I could just ask about, oh go ahead, go ahead. I was just gonna say we're talking about ceiling and I want to just point out that that was our second best quarter ever in ceiling. So low is a difficult concept last year, our second best quarter ever and I think it's going to be better in the future.
Jeff Hammond: Excellent. Then, just on the expanded credit availability, should we be thinking about M&A at all? How is the M&A market looking like?
Excellent.
Joe Bruderek: Yeah, I mean, we continue to be very active there, proactive in working our pipeline. There are opportunities that are starting to free up a little bit, right? We're extremely active. As we've talked about in the past, Steve, we continue to be very excited by some of these growth nodes that we have in key markets where we have these kind of 5% to 8% of total Enpro Inc. revenue positions, like in compositional analysis that we just talked about, food and biopharma, space and aerospace, surface protection and surface coating. These are spaces that we really like. We're actively working our development pipeline there. It's just the ability to meet our financial and strategic criteria and be actionable at the same time. So we're working hard.
Um and then just on the expanded, uh, credit availability, should we be thinking about m&a at all? How's the m&a market looking like?
Uh, food and biofarma, you know, space and Aerospace, um, surface protection and and surface. Coating, you know these are spaces that we really like we're actively working our development uh pipeline there and it's just the ability to um
You know, meet our financial and strategic criteria, and be actionable at the same time. So,
Jeff Hammond: Excellent. All right. Thanks, everyone.
Uh, we're working it hard.
Excellent. All right. Thanks everyone.
Daryl: Thank you. This does now conclude the question and answer session. I would now like to turn the floor back over to James Gentile for closing comments.
Joe Bruderek: Thank you for your interest in Enpro. We are delighted with, you know, the balance of 2025 and the forward look. It is going to be an exciting few years ahead. Take care.
Thank you. This does not conclude the question and answer session. I will now like to turn on the floor. Back over to James Jen Tilly for closing comments,
thank you for your interest in mro. We're delighted with, uh, you know, the balance of 2025 and the forward. Look. Um, it's going to be a
It's going to be an exciting few years ahead. Take care.
Daryl: Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect at this time. Enjoy the rest of your day.
Thank you. This does conclude today's teleconference, we appreciate your participation. You may disconnect at this time and enjoy the rest of your day.