Enpro Q4 2024 Earnings Call Transcript

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February 19, 2025
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Operator

Greetings, and welcome to the mprobe Q4 and Full Year twenty twenty four Earnings Conference Call and Webcast. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to James Gentile, Vice President, Investor Relations.

Operator

Please go ahead, James.

James Gentile
James Gentile
Vice President-Investor Relations at Enpro

Thanks, Kevin, and good morning, everyone. Welcome to EnPro's fourth quarter and full year twenty twenty four earnings conference call. I will remind you that our call is being webcast at enpro.com, where you can find the presentation that that accompanies this call. With me today is Eric Valancourt, our President and Chief Executive Officer and Joe Broderick, Executive Vice President and Chief Financial Officer. During today's call, we will reference a number of non GAAP financial measures.

James Gentile
James Gentile
Vice President-Investor Relations at Enpro

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, including our most recent Form 10 K. 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.

James Gentile
James Gentile
Vice President-Investor Relations at Enpro

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

Eric Vaillancourt
Eric Vaillancourt
President & Chief Executive Officer at Enpro

Thanks, James, and good morning, everyone. Thank you for joining us today as we review our results for the fourth quarter and full year 2024 and provide a business update that introduces our outlook for 2025. Before we get started, I would like to thank our colleagues across the company for delivering another great year of results. I very much appreciate all of your hard work and the remarkable contributions that you make each day to enable our company's success. I look forward to continuing our work together as we empower technology with purpose and create opportunities for each of us to flourish and thrive.

Eric Vaillancourt
Eric Vaillancourt
President & Chief Executive Officer at Enpro

Now on to our results. EnPro performed well in 2024, executing effectively despite persistent weakness in semiconductor capital equipment demand and a sharp decline in commercial vehicle OEM sales. Excellent performance across Sealing Technologies segment offset an overall soft demand environment in AST, driving improved bottom line results year over year. Thanks to the inherent balance and quality of the EnPro portfolio and the resilience of our business model, we generated strong free cash flow in 2024 and ended the year with a net leverage ratio of 1.6 times, well within our desired range. Concealing Technologies, our excellent performance at Efficient Operations drove an adjusted segment EBITDA margin of over 32% for the year.

Eric Vaillancourt
Eric Vaillancourt
President & Chief Executive Officer at Enpro

We are very pleased with the strength of the segment and how our teams are positioning the businesses to drive above market growth by leveraging our applied engineering capabilities and specification positions to deliver important solutions to our customers in areas where we have clear technology and process advantages. Our efforts to improve and evolve Sealing Technologies to position the segment for world class performance have unlocked significant value. In 2019, when we embarked on our portfolio optimization strategy, the ceiling adjusted segment EBITDA margin approximated 17%. Through this purposeful and structural transformation, we have created a group of businesses that can deliver adjusted segment EBITDA margins around 30% consistently. Now that this portion of our evolution is complete, we are leaning into our strengths and our best growth opportunities, identifying adjacent markets for our products to drive long term organic growth, while considering selective acquisitions that would expand the segment's capabilities.

Eric Vaillancourt
Eric Vaillancourt
President & Chief Executive Officer at Enpro

At AST, revenue ended the year down roughly 10% as weakness in semiconductor capital equipment spending continued, partially offset by the strength of our solutions serving leading edge applications. The low point of AST's revenue in 2024 came in the first quarter and then sales modestly improved sequentially each quarter as the year progressed. Adjusted segment EBITDA margins finished the year above 21%, reflecting our resilient performance in a choppy demand environment. In total, EnPro reported approximately $255,000,000 in adjusted EBITDA for 2024, up 7% year over year. Considering weak demand in areas of semiconductor capital equipment spending and the sharp decline in commercial vehicle OEM demand, we are pleased with EnPro's adjusted EBITDA margins of 24.3% that are up 180 basis points from prior year.

Eric Vaillancourt
Eric Vaillancourt
President & Chief Executive Officer at Enpro

Next, I would like to take a couple of minutes to share some recent highlights from our January leadership conference, where 85 leaders from across the company gathered to launch EnPro three point zero, the next phase of our purposeful value creation journey. Our team is aligned on our long term strategic goals and focused on areas where we can accelerate profitable business growth and meaningful personal and professional advancement. But first, what is EnPro three point zero? We think of our company's elevation in three phases. Following our spin off from Goodrich Corporation in 02/2002, the company's first phase was about permanently resolving significant legacy liabilities while establishing the beginning of our dual bottom line culture.

Eric Vaillancourt
Eric Vaillancourt
President & Chief Executive Officer at Enpro

The second phase, EnPro two point zero, was about portfolio transformation. We began this phase in 2019, divesting a number of businesses and product lines that did not meet our growth, profit and return criteria, while reallocating proceeds from these divestments into growth markets where we added strong technological and applied engineering capabilities. During this phase, we optimized Denpro portfolio and widened adjusted EBITDA margins by 1,000 basis points, creating significant shareholder value, returning nearly 27% annually since 2019 upon a much more efficient and profitable revenue base. These moves optimized our go forward portfolio and set the stage for EnPro three point zero, a period where we expect higher revenue growth coupled with best in class profitability and strong returns on invested capital. Successful execution of this next phase of EnPro will accelerate our value creating strategy and continue our excellent track record of delivering double digit shareholder returns.

Eric Vaillancourt
Eric Vaillancourt
President & Chief Executive Officer at Enpro

At the leadership conference, we had several discussions and exercises that focused on driving top line profitable growth, while encouraging a growth mindset to embrace challenges, refine our processes and actively implement our continuous improvement playbooks to reimagine areas where both commercial market expansion and efficiency opportunities exist. I was struck by the genuine excitement that our leaders have for our businesses and their motivation to achieve profitable growth to unlock additional opportunities for our colleagues and value for our stakeholders. With our optimized portfolio in place, EnPro is positioned to generate mid to high single digit top line growth over the long term as strong profitability and return levels. Over the next five years, we are targeting mid single digit growth in ceiling, while at ASP, we are targeting at least high single digit growth with both segments capable of generating 30% adjusted segment EBITDA margins plus or minus two fifty basis points. The entire team is excited to deliver the next phase of growth in EnPro three point zero.

Eric Vaillancourt
Eric Vaillancourt
President & Chief Executive Officer at Enpro

Before I turn the call over to Joe to discuss our fourth quarter results in more detail and provide 2025 guidance, I would like to comment on safety, which is our most important core value. In 2024, our safety results for total recordable case rate and lost time case rate continue to be much better than industry averages, while proactive measures such as employee engagement, safety opportunities corrected, training completion rose by double digits. We are building on EnPro's approach to safety culture by aligning with ISO 45,001. Occupational safe health and safety management systems to ensure repeatable processes and drive continuous improvement. This year, three EnPro locations received third party certifications for ISO 4,001.

Eric Vaillancourt
Eric Vaillancourt
President & Chief Executive Officer at Enpro

Joe?

Joe Bruderek
Joe Bruderek
CFO & Executive VP of Finance at Enpro

Thanks, Eric, and good

Joe Bruderek
Joe Bruderek
CFO & Executive VP of Finance at Enpro

morning, everyone. In the fourth quarter, sales of $258,400,000 increased 3.7% and organic sales increased 1.2%. The increase was primarily driven by strong sales performance in the Sealing Technologies segment. Strong demand in Aerospace and Nuclear markets and a recovery in European General Industrial and Food and Farming demand as well as strategic pricing initiatives and the addition of AMI more than offset slower sales tied to wafer fab equipment at AST and a sharp decline in commercial vehicle OEM demand. Fourth quarter adjusted EBITDA of $58,200,000 increased 24% and adjusted EBITDA margin of 22.5% expanded three seventy basis points year over year.

Joe Bruderek
Joe Bruderek
CFO & Executive VP of Finance at Enpro

Positive mix in both segments, the addition of AMI, the benefits of cost mitigation actions and lower corporate expense were the primary drivers of this year over year improvement. Corporate expenses of $13,400,000 were down from $14,700,000 in the fourth quarter of twenty twenty three, primarily due to the decrease in long term incentive compensation expense related to cash settled share based rewards tied to share price performance compared to last year. Adjusted diluted earnings per share of $1.57 increased 32% compared to the prior year period, largely driven by the factors increasing adjusted EBITDA. Moving to a discussion of segment performance. Sealing Technologies sales of $163,000,000 in the fourth quarter increased 11% from the prior year period.

Joe Bruderek
Joe Bruderek
CFO & Executive VP of Finance at Enpro

Strong demand in aerospace and nuclear markets, strategic pricing actions, the addition of AMI and a recovery in food and pharma and European general industrial markets more than offset continued weakness in commercial vehicle OEM and Asian industrial markets. Organic sales increased 6.7%. For the fourth quarter, adjusted segment EBITDA increased nearly 32% from the prior year period with adjusted segment EBITDA margin expanding almost 500 basis points to 31%. Positive mix, strategic pricing, improved volume and the addition of AMI contributed to the strong year over year profit performance. We are very pleased with the impressive performance throughout the Sealing Technologies segment and plan to continue making targeted investments to drive incremental organic growth, along with considering select strategic acquisitions that meet our rigorous criteria to expand our capabilities and market positioning.

Joe Bruderek
Joe Bruderek
CFO & Executive VP of Finance at Enpro

With two thirds of the segment comprising critical specified positions in the aftermarket and the sustained structural improvements made in the segment in recent years, we expect to continue achieving world class performance in ceiling and driving mid single digit top line growth at superior margins. Turning to Advanced Surface Technologies. While we saw sequential improvement from the third quarter, sales of $95,600,000 decreased 6.4% year over year. Continued weakness in semiconductor capital equipment spending offset strength in solutions serving leading edge applications, which continued to be a bright spot for AST in the fourth quarter and throughout the year. For the fourth quarter, adjusted segment EBITDA decreased approximately 7% versus the prior year period.

Joe Bruderek
Joe Bruderek
CFO & Executive VP of Finance at Enpro

Adjusted segment EBITDA margin of 22.1% improved sequentially by 130 basis points and was flat year over year. Positive mix and continuous improvement initiatives offset the overall volume decline, material cost increases and operating costs related to growth investments. We were pleased that we were able to hold the line on decremental margin in AST year over year during the fourth quarter. We see several long term revenue growth and continuous improvement opportunities throughout AST and are taking actions to unlock the potential of this business. We have made progress in identifying levers to implement our optimization playbooks that led to the improved performance within the Sealing Technologies segment that we will expect will enable us to expand margins in AST toward 30% plus or minus two fifty basis points more consistently as volume and mix normalize.

Joe Bruderek
Joe Bruderek
CFO & Executive VP of Finance at Enpro

Finally, the accelerated qualification work that we discussed last quarter in Arizona gained traction and we generated small initial revenue from the facility during the quarter. We believe the long term growth opportunities in AST far outweigh the recent market choppiness, which we expect to continue this year. Accordingly, we will continue to invest in the segment to drive high single digit long term revenue growth with improved profitability. Turning to the balance sheet and cash flow. Our balance sheet remains strong and we exited 2024 with a net leverage ratio of 1.6 times, inclusive of the $210,000,000 in cash used to acquire AMI in late January of twenty twenty four.

Joe Bruderek
Joe Bruderek
CFO & Executive VP of Finance at Enpro

We continue to generate ample free cash flow to invest the necessary capital and operating expenses into our strategic organic growth opportunities. In 2024, we generated $130,000,000 in free cash flow, net of $33,000,000 of property, plant and equipment and capitalized software expenditures, in addition to approximately $7,000,000 that remained in payables on December 31. We have strong financial flexibility to execute our strategic initiatives, both organically and through strategic acquisitions that broaden our capabilities. Our goal is to build on our leading edge positions in markets with secular growth drivers that safeguard critical environments and applications that touch our lives every day. We are also maintaining our commitment to return capital to shareholders.

Joe Bruderek
Joe Bruderek
CFO & Executive VP of Finance at Enpro

And during 2024, we paid a $0.3 per share quarterly dividend totaling $25,300,000 for the year. On February 13, our Board of Directors approved another increase to the quarterly dividend to $0.31 per share, representing the tenth consecutive annual dividend increase since we initiated a quarterly dividend in 2015. Moving now to our 2025 guidance. Taking into consideration all the factors that we know currently, we expect total EnPro sales growth to be in the low to mid single digit range in 2025. We expect adjusted EBITDA to be in the range of $262,000,000 to $277,000,000 and adjusted diluted EPS to range from $7 to $7.7 per share.

Joe Bruderek
Joe Bruderek
CFO & Executive VP of Finance at Enpro

The normalized tax rate used to calculate adjusted diluted earnings per share remains at 25% and fully diluted shares outstanding are approximately $21,000,000 This view does not contemplate any material macroeconomic or trade related variability. In 2025, capital expenditures are expected to approximate 50,000,000 or around 4.5% of sales as we continue to invest in future growth opportunities across the company at accretive margin and return thresholds. In the Sealing Technologies segment, we expect demand drivers to remain largely the same as we saw in 2024 and expect low to mid single digit revenue growth in 2025. Areas with longer cycle backlog such as aerospace, space and nuclear are expected to continue to be strong, while we expect commercial vehicle to be flat to slightly up. In North America and in Europe, we expect firm general industrial demand with some recovery in food and pharma.

Joe Bruderek
Joe Bruderek
CFO & Executive VP of Finance at Enpro

We expect adjusted segment EBITDA margin to again exceed 30% in 2025. In the Advanced Service Technologies segment, we expect AST sales to grow in the mid to high single digits with the second half of twenty twenty five being slightly stronger and adjusted segment EBITDA margin to remain above 20% for the year. Industry sources and conversations with our customers suggest continued weakness in semiconductor cap and equipment spending throughout 2025, and we are making targeted cost adjustments to account for this reality. While overall capital spending for wafer fab equipment will remain muted again this year, we expect our solutions serving leading edge nodes and advanced chip architectures to continue to grow. We also expect demand for optical filters to improve.

Joe Bruderek
Joe Bruderek
CFO & Executive VP of Finance at Enpro

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

Eric Vaillancourt
Eric Vaillancourt
President & Chief Executive Officer at Enpro

Thank you, Joe. As we enter 2025, we are energized and working hard to deliver another year of strong results for our customers and shareholders. We continue to operate the business with balance in an effort to achieve excellent financial results in a variety of economic environments. Our value creating strategy remains unchanged, and we continue to invest in areas where we are strongest, while considering strategic acquisitions that build upon our leading edge capabilities. I want to again thank our dedicated colleagues across the company who are the driving force for our company's success.

Eric Vaillancourt
Eric Vaillancourt
President & Chief Executive Officer at Enpro

And we believe we have built a clear path to achieve our vision of EnPro three point zero. Thank you for joining us today. There's no better time to be a part of EnPro and we now welcome your questions.

Operator

Thank you. We'll now be conducting a question and answer session. Our first question is coming from Jeff Hammond from KeyBanc Capital Markets. Your line is now live.

Jeffrey Hammond
Managing Director at KeyBank Capital Markets

Hey, good morning, gentlemen.

Eric Vaillancourt
Eric Vaillancourt
President & Chief Executive Officer at Enpro

Good morning, Jeff.

Joe Bruderek
Joe Bruderek
CFO & Executive VP of Finance at Enpro

Good morning, Jeff.

Jeffrey Hammond
Managing Director at KeyBank Capital Markets

We'll start with the $64,000 question, semiconductor. Kind of just wanted to better I think you said mid to high single digit growth for AST. So just trying to better get a sense of what you're assuming for WFE or wafer starts and when you think you see an inflection or if the growth is really just all kind of outgrowth and leading edge focus?

Eric Vaillancourt
Eric Vaillancourt
President & Chief Executive Officer at Enpro

I think it is mostly outgrowth in leading edge applications, but I also see you're getting some degree of the law of small numbers that's just gone down so much there's room to improve at this point. There's also a little bit of market share gain in there. We can look at our funnel and see some programs we've won to give us some confidence we'll get to those numbers spread into the year. I'm not looking for strong market recovery. We expect to be quite choppy throughout the year.

Joe Bruderek
Joe Bruderek
CFO & Executive VP of Finance at Enpro

Yes, Jeff, I think when you look at a lot of the industry sources, they're

Joe Bruderek
Joe Bruderek
CFO & Executive VP of Finance at Enpro

kind of saying low to mid single digits. It varies depending on where you're exposed and how much China exposure you have versus non China. But that's sort of what we're expecting low growth in WFE overall for the market in 2025 and then the investments that we've made and the growth initiatives that we have especially on leading edge applications to kind of outperform and that drives our overall kind of forecast for 2025.

Jeffrey Hammond
Managing Director at KeyBank Capital Markets

Okay. And then just how should we think about ASP sequentially? You ramp through 'twenty four. I don't know if you step back down or if fourth quarter is new run rate to think about?

Joe Bruderek
Joe Bruderek
CFO & Executive VP of Finance at Enpro

Yes, I think it's going to be choppy for the first half a little bit again. We could see a little bit of step back to be slightly flat to slightly down in the first half, but not materially. We do think it will be second half slightly stronger than the first half overall for AST. So you could see some choppiness quarter to quarter, but I don't think we're going to see a material step down in any way. We've invested behind all the growth investments.

Joe Bruderek
Joe Bruderek
CFO & Executive VP of Finance at Enpro

Arizona, as we talked about, had some initial revenue in the fourth quarter. That testing revenue and qualification work will continue in 2025. But the reality is that that will be mostly spending ahead of demand for now. We see that ramping up a little bit through 2025, but materially production volume coming in 2026 and even beyond that as our key customers kind of ramp their volume. But it's another year of strong growth investments for us behind AST and then scaling with our customers as they grow.

Jeffrey Hammond
Managing Director at KeyBank Capital Markets

Okay. And then last one, just a lot of news flow on tariffs. So I know it's pretty new, but just how are you thinking about and how you built tariff risk into the guide? Maybe just talk about any pricing actions you're considering and maybe just remind us of kind of any sourcing footprint, China, Mexico, Canada?

Eric Vaillancourt
Eric Vaillancourt
President & Chief Executive Officer at Enpro

Sure. So most of our sourcing is done in region. And the largest part of our supply chain is actually source directed by customer. So the areas where we have exposure, we have three product lines, one small small one in Mexico, One small one in Canada and then another one, again, small volume out of China. Altogether, it wouldn't be material.

Eric Vaillancourt
Eric Vaillancourt
President & Chief Executive Officer at Enpro

And I also think there will be some offsets in The U. S, if and when the tariffs are enacted, depending on how much they are. But we've already got price plans in place and we'll also use in some cases, what do you call them, I'm sorry, surcharges to capture them immediately. And so we can also adjust as the administration sorts out what they're doing. So we will capture most of the price.

Eric Vaillancourt
Eric Vaillancourt
President & Chief Executive Officer at Enpro

And in any event, in the worst case scenario, it wouldn't be material.

Jeffrey Hammond
Managing Director at KeyBank Capital Markets

And the customer directed sourcing, is that or is that have pass throughs for tariffs?

Eric Vaillancourt
Eric Vaillancourt
President & Chief Executive Officer at Enpro

We buy it at a net cost. So whatever price, we get it from them at their net cost, so that tariffs would already improve in there. And we would go from that point, Jeff. It would be in the base, if you will. It wouldn't affect us.

Eric Vaillancourt
Eric Vaillancourt
President & Chief Executive Officer at Enpro

Okay. The customers are specifying it.

Jeffrey Hammond
Managing Director at KeyBank Capital Markets

Okay. I'll get back in queue. Thanks.

Operator

Thank you. Next question is coming from Steve Faritani from Sidoti and Company. Your line is now live.

Steve Ferazani
Senior Equity Analyst - Diversified Industrials & Energy at Sidoti & Company, LLC

Good morning, everyone. Appreciate all the detail on the call. I was actually a little positively surprised by your AST margin this quarter given I know you are going through that certification process. I assume there would have been a sequential decline. You actually had a sequential increase.

Steve Ferazani
Senior Equity Analyst - Diversified Industrials & Energy at Sidoti & Company, LLC

Given the costs associated with that, was it just much better mix this quarter? Can you walk us through how you got to that sequential increase despite the certification process in Arizona?

Joe Bruderek
Joe Bruderek
CFO & Executive VP of Finance at Enpro

Yes. Good morning, Steve. Yes, we talked, as you mentioned last quarter, about the qualification work that we are accelerating and pulling from 2025 into 2024. We did all that and frankly, it went as according to plan. So we did see a little bit higher cost in the fourth quarter than we originally intended.

Joe Bruderek
Joe Bruderek
CFO & Executive VP of Finance at Enpro

But we did see positive mix especially on leading edge work both in Taiwan and in The U. S. And that drove favorable mix. Volume was pretty strong through the back half of the year or back half of the quarter. And so that favorable mix ticked our margins up a couple of points more favorable than we expected

Joe Bruderek
Joe Bruderek
CFO & Executive VP of Finance at Enpro

even going into the fourth quarter.

Steve Ferazani
Senior Equity Analyst - Diversified Industrials & Energy at Sidoti & Company, LLC

As you expect the solutions to be the stronger side in 'twenty five and that's the better margin where it appear to be the better margin side, Is there any reason to think you can get above low 20s in 2025 on the margin side?

Joe Bruderek
Joe Bruderek
CFO & Executive VP of Finance at Enpro

You're right in the fact that we do see the solution side to be stronger and that will kick our growth rate up a little bit through the year. But we continue to invest in the work in Arizona and in other opportunities for growth that we're going to really pay off in 'twenty six and beyond. So we're still investing ahead of demand. And in fact, we're investing a little bit increasingly more than we did in 2024. So if volume overall volume growth is a little stronger than we're talking about and we're on the higher end of our overall revenue guide, I think we could see margins pick up a little bit.

Joe Bruderek
Joe Bruderek
CFO & Executive VP of Finance at Enpro

But the reality is they'll probably be in the same range as we saw above 20% in 25%.

Steve Ferazani
Senior Equity Analyst - Diversified Industrials & Energy at Sidoti & Company, LLC

Okay. That's helpful. On the ceiling side, I want to ask the tariff question in a different way. We've seen some markets maybe the spending on the industrial side slow down given general uncertainty, Europe and other places being concerned about what might be coming. I know a lot of your stuff on sealing is mission critical, but have you seen any kind of a slowdown given the uncertainty in the world?

Eric Vaillancourt
Eric Vaillancourt
President & Chief Executive Officer at Enpro

Short answer is no. We really haven't seen any slowdown at all.

Steve Ferazani
Senior Equity Analyst - Diversified Industrials & Energy at Sidoti & Company, LLC

Okay, fair enough. Last one on that, the much higher CapEx next year, anything specific you want to highlight? And it looks like some stuff probably pushed out at 2024 given how low that number came in. Is that fair?

Joe Bruderek
Joe Bruderek
CFO & Executive VP of Finance at Enpro

Yes, that's right, Steve. I mean, as we talked about, we lowered our CapEx number as we move through the year. A lot of the projects that not Arizona, but other growth investments that we're making in additional capabilities, both geographically and from a technology standpoint. We're kind of getting off the ground a little bit in 2024. And so as we refine the scope, laid out our engineering plans on that, they were a little bit paced through the year to start later than originally expected.

Joe Bruderek
Joe Bruderek
CFO & Executive VP of Finance at Enpro

So that's going to push into 2025. Those projects are off and going now. We're in execution mode. So we do feel a little bit higher confidence in our ability to spend at that level. We did talk about we got probably our eyes got a little bit ahead of our stomach in 'twenty four a little bit, but we're often running in those projects and the $40,000,000 to $50,000,000 is probably our normal capacity to spend.

Steve Ferazani
Senior Equity Analyst - Diversified Industrials & Energy at Sidoti & Company, LLC

Okay, great. Thanks, everyone.

Operator

Thank you. Our next question is coming from Ian Zaffino from Oppenheimer. Your line is now live.

Isaac Sellhausen
Director - Equity Research at Oppenheimer & Co. Inc.

Hey, good morning. This is Isaac Salison on for Ian. Thanks for taking all the questions. And also on the details on the MPO sorry, EDPRO three point zero phase. I guess on AST, what would be sort of the steps or high level thinking to get to 30% EBITDA margins versus around 20% plus today?

Isaac Sellhausen
Director - Equity Research at Oppenheimer & Co. Inc.

I guess the main drivers as far as like top line growth or operational improvements or contributions from the Arizona facility? Thanks.

Eric Vaillancourt
Eric Vaillancourt
President & Chief Executive Officer at Enpro

Yes. So our investments that we've been making over the last number of years in leading edge technology will start to pay off over time. In 'twenty six, as Joe started, it will start to ramp up there. But in addition, there will be some market share gain along the way and then a bunch of operational improvements. So when you look at it, it's the same as we ran in the ceiling playbook.

Eric Vaillancourt
Eric Vaillancourt
President & Chief Executive Officer at Enpro

So we say it's an overnight success. But as you saw earlier in the script, it was from 2019 to today, we've improved about 1,000 basis points. So it's a little bit of everything, it's a little bit of eightytwenty, it's a little bit of customer mix, it's a little bit of share gain and it's a little bit of leading edge technologies that have of course have a little higher margins.

Joe Bruderek
Joe Bruderek
CFO & Executive VP of Finance at Enpro

Yes, there's no doubt. I think the majority of that will come from just growth, whether it be market recovery or outsized growth that we're driving through our strategic positioning. But there will be a decent element from the continuous improvement and other operational efficiency programs that we're driving now that will affect over a multiyear period that will clearly have to be part of the algorithm to get to that 30% sustainably.

Isaac Sellhausen
Director - Equity Research at Oppenheimer & Co. Inc.

Okay, great. Thank you. And then just a quick follow-up on the semi cap equipment side. Maybe if you could find any kind of details you could give with the conversations you've had with customers and maybe sort of how they're thinking about growth beyond 25% or into 26%? Thanks.

Eric Vaillancourt
Eric Vaillancourt
President & Chief Executive Officer at Enpro

Yes. So I guess the best way to in conversation with customers, what they're saying is basically choppy 2025 and 2026 is too far ahead to have a great look at it right now. And the customers are hesitant as we are to say on anything more than that because we've been saying now that it will be coming back in six months now for two years. And I don't know that we have more visibility than that. So I think Gartner is probably as good at a reference to anybody right now and our customers are the fair amount of uncertainty still with what's going on with The U.

Eric Vaillancourt
Eric Vaillancourt
President & Chief Executive Officer at Enpro

S. Situation, let's say.

Isaac Sellhausen
Director - Equity Research at Oppenheimer & Co. Inc.

Okay, understood. Thank you.

Operator

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

James Gentile
James Gentile
Vice President-Investor Relations at Enpro

That's all today. Thank you for your interest in EnPro.

Operator

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

Executives
    • James Gentile
      James Gentile
      Vice President-Investor Relations
    • Eric Vaillancourt
      Eric Vaillancourt
      President & Chief Executive Officer
    • Joe Bruderek
      Joe Bruderek
      CFO & Executive VP of Finance
Analysts
    • Jeffrey Hammond
      Managing Director at KeyBank Capital Markets
    • Steve Ferazani
      Senior Equity Analyst - Diversified Industrials & Energy at Sidoti & Company, LLC
    • Isaac Sellhausen
      Director - Equity Research at Oppenheimer & Co. Inc.
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