Enpro Inc. Q1 2026 earnings call

Thanks, James Gentile, and good morning, everyone. Thank you for joining us today as we review Enpro's first quarter of 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'll 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. 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. 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 strengths of our portfolio. Our leading market positions, committed colleagues, and strong balance sheet support the continued execution of our multi-year 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 two businesses that we acquired in the fourth quarter, AlpHa Measurement Solutions and Overlook Industries, 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 Enpro 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 beginning 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 of record designations solidifies our position in leading-edge precision cleaning solutions, a business that is currently strong and accelerating. Our capacity expansions 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 solution sales and currency tailwinds. Commercial vehicle sales were down year-over-year below our expectations as demand remained slow, although we're cautiously optimistic that we are nearing the bottom in commercial vehicle markets.

Aerospace sales and Sealing were flat year-over-year, reflecting a difficult year-over-year comparison in commercial aerospace, which was partially offset by continued acceleration and 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. 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. For 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 ±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 solution 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 number one 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%-14% range, up from 8%-12%. Adjusted EBITDA in the range of $315 million-$330 million, up from $305 million-$320 million previously. Adjusted diluted earnings per share to range from $8.85-$9.50, up from $8.50-$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-over-year, despite a slightly softer commercial vehicle outlook than previously expected. 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% ±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 align 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.