Hi, everyone. Welcome to the Oppenheimer Industrial Conference. My name is Isaac Selhausen, and I work with Ian Zafino here at Oppenheimer, covering Enpro. I'm very pleased to be joined by Joe Broderick, the company's CFO, and James Gentile, the Vice President of Investor Relations. I have a good list of questions today that we'll run through, but if anyone would like to ask anything more specifically, please put your question in the Q&A chat, or you can email me at isaac.selhausen at opco.com. With that, Joe and James, thanks for joining us today.

Thank you, Isaac. Good morning.

Awesome. So yeah, I think we'll start just with a brief overview of NPRO. So, you know, the portfolio has transformed quite a bit over the last few years. So maybe walk us through a little bit of the history in terms of portfolio transformation and then, you know, a quick overview of the segments. Yeah, thanks, Isaac.

as you just mentioned, we exited a period of what we called Enpro 2.0 at the end of 2024, which was a very significant period of successful portfolio transformation, right, where we took some of the businesses that we've had in the portfolio historically, but that didn't quite meet the strategic and financial criteria of where Enpro was headed and divested those in the period of 2017 to 2024, took those proceeds and reinvested back into areas of the business that now makes up the AST portfolio, which was a significant move into the semiconductor space. And that period of N-PRO 2.0 was incredibly successful, right? We saw 1,000 basis points of margin expansion, both gross and EBITDA margins. And we really centered the portfolio around businesses that had both the strategic moat and financial criteria of what we're looking for going forward, which was strong gross margin performance, high cash flow return on investments, all with the attributes of small percentage of customer spend, but absolutely critical to their process, providing some sort of critical safety function in niche positions, highly engineered, highly specified positions, and the ability to grow without the need of heavy capital load on them. So we have a very strong portfolio now in both the semi-AST business and in ceiling. And we've marked the beginning of what we're now calling NPRO 3.0 at the beginning of 2025, which is all about accelerating personal growth of our colleagues and the profitable growth of the company. We have the portfolio that we want. We're not planning any major divestitures. And we're going to focus on growing from here. When you look at the two segments, ceiling technologies has the ability to grow mid-single digits over the lifetime of N-Pro 3.0 organically with a strong margin profile of 30% plus or minus 250 basis points. It's an area of focus for M&A, strategic value-creating M&A, capability extensions and expansions, and a good cash generator for us. AST, with the portfolio that we have, which is a vertically integrated offering of products and services supporting the in-chamber environment within the semiconductor industry, with the ability to grow at least high single, low double digits over time with a margin capability in the same 30% EBITDA margins plus or minus 250 basis points depending on volume and mix over time. And so, like I said, MPRO 3.0, all about accelerating personal profitable growth and supporting that with strategic value investment, both inorganic and inorganic.

Okay, great. Yeah, thanks for that. It's good to just level set everyone. So yeah, we'll dive into AST or advanced surface technologies first. You know, maybe if you could outline the product portfolio between the cleaning and coding solutions and more of the semi-cap equipment side, and then, you know, lay out kind of the end market exposure within semiconductors and, you know, the growth drivers that, you know, are really benefiting the business.

Sure, I'll start, and then, James, feel free to add on. So, like I said, in the NPRO 2.0 period, we accumulated a portfolio of offerings that were very complementary in nature to each other. So we have the ability to support the in-chamber environment, managing the entire lifecycle of these critical in-chamber tools, sort of the critical organs inside the chamber. So we have the ability to design, prototype, manufacture, coat, clean in a preparatory way, and for new parts, new tools going into the in-chamber environment. And then once they're in service, we have the ability to service the aftermarket by precision cleaning, doing additional coding cycles, and extending the life of those tools over the lifecycle and improving yield for our customers of those in-chamber environments. So the aftermarket piece, the precision cleaning, is really tied to leading-edge manufacturing of advanced nodes. So our beachhead is in Taiwan there, but we also have capability in the U.S., which is a significant competitive advantage, both in Milpitas, California, and now in Arizona with our new investments. And there we're doing very highly specified precision cleaning of advanced node chip architectures for critical tools. That part of the business has grown very well over the entire last five-year horizon because it's tied to advanced node chips, and we're a key partner for 7 nanometer and below manufacturing processes. The other half of the semiconductor business that we have is for the design and coding and manufacturing of these critical in-chamber tools, which is supporting the broader market, both leading edge and traditional chips, and a little bit more tied to WFE there, which has been in a down cycle in the COVID sort of overcapacity period. And now we're seeing significant inflection in demand, right? Projections for WFE for this year are very strong through 2026 and into 2027 as advanced computing and AI are driving demand for advanced nodes. And you're starting to see the more mass part of the market seeing a reinvestment cycle as well. Both of those are leading to significant capacity installation in new equipment supporting chip manufacturing. So, again, very strong outlook right now. We saw a large inflection in orders in the first quarter for demand for the second quarter, tail end of the second quarter, but more predominantly in the second half, where we're seeing significant increases in demand, and we're focused on partnering with our customers to support their needs and deliver.

For AST, Isaac, we just reported Q1 earnings on Tuesday this week, and we raised guidance primarily driven by strong performance expected for the balance of this year in AST, where we now expect mid-double-digit top-line growth and adjusted segment EBITDA at the segment level exiting the year around 25%.

Okay, great. Yeah, thanks for that. And then, you know, Joe, you talked a little bit more before about the exposure on the leading edge node side. um maybe help us understand you know what portion of you know ast revenue or the business is tied to that um and then as far as you know customer concentration um you know you obviously have a global kind of platform now um if you just talk to that in terms of customer base and how does

it evolve as as you scale yeah for our our precision cleaning business which um you know if you think about our business as roughly 60%, the OE cycle and 40% the aftermarket, that aftermarket part is predominantly precision cleaning, right? We have other capabilities, refurbishment, recode, et cetera, but cleaning is the majority of that. Our cleaning business is all leading edge nodes. And we're supporting, you know, sub 14, but more specifically sub seven nanometer processes with our precision cleaning solutions. On the rest of the business, we're supporting the entire market. We have certain critical technology platforms that tend to be supporting true new technology and leading edge. But we also support tools and critical capabilities that support the overall chip manufacturing environment. So that part that's more tied to equipment is supporting the overall. We have several customers that we've supported for many, many years and continue to drive new platforms with, and we continue to expand our capability as we expand offerings in both our facilities in California and in Boise, Idaho, and now extending into Singapore, building on our capabilities in Taiwan, and then obviously our foray into Arizona and the build out of our phase one facility. So it allows us to support a number of different technologies, a number of different capabilities and offerings within our customers' offerings, but also, you know, multiple customers across our entire global footprint.

And throughout the downturn, I would add, Isaac, that we have made significant investments in new platforms and capacity expansions in line with customers that are requesting certain geographic locations and things like that. And all the while through the downturn, the segment through pretty heavy investment for organic growth to position the AST segment to, you know, for the inevitable, you know, recovery in semiconductor capital equipment spending, we're able to maintain that 20% adjusted EBITDA margin at the lower end of the range.

Yep. Okay. Yeah, that's helpful to understand. And then just to tie things together on AST, you obviously mentioned the organic growth projects that you've done, you know, both domestically and internationally in Taiwan, you know, maybe specific to the Arizona facility. If you could, you know, talk to the platform, kind of ramp up there, you know, on the earnings call, you talked a little bit about growth in the second half of the year. And then, yeah, second to that would just be, you know, kind of inorganic projects. You know, there has been some M&A and acquisitions in this business historically. Maybe if you just touch on those as well.

So we have a number of new platforms that we've been investing in for a few years that are starting to take hold, that will start to take hold in 2026. We talked about several of them delivering initial revenue in the back half of the second half of this year, and then more predominantly ramping into 2027. Arizona is one of those. So we've been in qualification mode for several quarters now going on a year. Those qualifications are going really well. We've also in the past been able to demonstrate the ability to replicate performance and deliver world-class cleaning solutions from Taiwan into our Milpitas, California facility and get same level of quality and performance there. And now we're in the process of doing the same in Arizona. We've already seen new fab contribution cleaning work in Milpitas, and we'll be on the second half of this year in the process of transitioning that into Arizona as Arizona achieves full qualification status, which we expect to start delivering in the back half of this year and then more specifically ramping in 2027. You asked about M&A. So yeah, I mean, we're really happy with the portfolio that we have in AST. You know, we have the ability to manage the entire lifecycle of those critical and chamber tools. Like I said, we're heavily focused on organic growth, both on new platforms and supporting our customers in the impending ramp and supporting the entire value chain and supply chain in installing significant capacity to support the demand. for leading edge chips. So from an M&A perspective, you know, the majority of our focus is on the ceiling side, right, where we have these growth nodes of nice positions in several end market segments, like compositional analysis within the broader test and measurement space, like food and biopharma, where we've done three acquisitions in the last two years, AMI, Overlook Industries, and Alpha Solutions, which is our critical technology and adjacent capability adds to our portfolio. They have the ability to grow faster than the overall ceiling segment. They have good gross margin and EBITDA margin potential, generate good cash, cash flow return on investments. So we continue to focus on the broader pipeline, but then more specifically allocate capital to M&A within those growth vectors within the ceiling technology space.

Yeah, got it. Yeah, I think that's a good time, maybe transition to the ceiling side. You obviously mentioned some of the more recent deals there, but at a high level, kind of talk to us a little bit about ceilings, business mix, and market exposure, a little bit different composition, I guess, compared to the AST side. And then, yeah, as far as some of the end markets, maybe point to some that are a little bit higher growth in that portfolio.

Yeah, so the ceiling technology segment is really a collection of truly world-class businesses, right? We have very strong positions in these spaces that have developed over many decades, highly specified, a significant aftermarket position in many of them, good margin profile, generate good cash returns. good pricing power, providing critical solutions to our customers, provide a critical safety function in a lot of cases with catastrophic points of failure. So these are very high quality businesses. Our largest exposure over time has been in general industrial, which is a majority of what makes up our Garlock business, and commercial vehicle, which for the last couple of years has been in, on the OEM side, been in quite a downturn, right, as the industry absorbs overcapacity from the post-COVID cycle. But yet we're still generating premium margins in that space. And now we've had nine quarters in a row, over 30% EBITDA margins, and have been at the top end of our state at EBITDA margin range at 30% plus or minus 250 basis points. So we feel really good about the ceiling technologies businesses um you know we feel like we're a mid single digit grower organically at least that's the guidance we reiterated for this year as well in 2026 you asked about kind of growth vectors right we we really like our food and biopharma position that is expected to grow you know at least high single digits with some elements of liquid diet liquid dose biologics that have the ability to grow double digits over time and specific niche positions within that that we're focused on. Our space and aerospace businesses have been growing really nicely with some N-Pro specific wins, commercial platform wins in that space to support space applications and satellite launch vehicles. That business is growing very well. The two acquisitions that we did, AMI and Alpha, you know, are good, high single, potentially low double digit growers over time. So we have these nice growth positions that exist within the ceiling technology space that'll help kick our growth right there. And then are just ripe to add to over time with, you know, value creating M&A, as I mentioned before. And I would also add that

similar to the advanced surface technology segment where we've been investing in, you know, future organic growth opportunities. Organic growth investment is occurring throughout ceiling technologies, capacity expansions in certain key product lines, machinery and equipment purchases to answer the demand for some of our growing areas. And, you know, still making sure that, you know, the more, some of the more mature areas within the segment, which generate excellent margins and great free cash flow with a strong aftermarket component are continuing to be maintained with, you know, an eye on efficiency and working capital management.

Yeah, thanks for that. And then, you know, just to go back to some of the more recent deals with Alpha and Overlook, you know, kind of in the compositional analysis space, maybe what do you like about that vertical? How is that business growing? Then, you know, in terms of how it fits within the portfolio, you know, are you looking to further diversify kind of the end market mix, you know, over the next few years?

Yeah, so more specifically in the test and measurement space and computational analysis, that's a space that we looked at for a number of years as having a lot of the key attributes that we look for in pro-like businesses, right, which are, again, small percentage of spend, but really critical to the process, a safety component, whether that be physical safety, process safety, increasing points of measurement, which is also a key mega trend in that end market. and has the ability to continue to grow. There's no doubt that customers and processes in general are looking for more data and more data driving insights and ultimately behaviors and productivity, et cetera. And our solutions support the collection and analysis of that data. So that's a space that we like. It's a space that we continue to have an active pipeline in. The AMI acquisition brought a specific primary position in midstream natural gas, but had additional capabilities and small positions in other end markets where we already have a good legacy foothold like general industrial, chemical, food and biopharma, and other areas that are potential growth vectors for AMI. So that brought gas capability, and then the Alpha acquisition brought a tremendous amount of liquid sensing and analysis capability in several end markets that were already connected to, like chlorine control, wastewater treatment, environmental monitoring that can be complementary in nature over time and provide additional growth opportunities. and then AMI and Alpha working together to continue to add additional adjacent capabilities to round out our portfolio there. So it continues to be a high-priority segment for us, both because of the attributes of that space and the potential growth, but also on what we see as synergistic over time to the other positions that we have across ceiling.

Yeah, yeah, understood. And then just touching on the commercial vehicle part, you know, I see a lot of the exposure on ceilings is an aftermarket. But, you know, commercial vehicle is about 20, 20% or so of revenue has been in a little bit of a down market, obviously, that you talked about before. Or maybe talk about the outlook there, you know, when you expect things to, you know, potentially turn the other way as fleets kind of right size. And then maybe longer term, kind of your positioning for hybrid or EV platforms as well.

Yeah, I mean, that's our commercial vehicle exposure is within our Stemco business, right? Stemco is a very, very high quality business in that space, providing a critical function for safety control of wheel end assemblies for goods moving around predominantly in North America. As you mentioned, right, after COVID, there was a significant amount of capacity that was put in place for new trailers and new trucks in North America, responding to some of the supply chain tightness, where traditionally you would see the number of new trailers built every year in the roughly 240 to 250,000 units per year, and inflected all the way up over 320,000 for a period of time. And then we've seen that overcapacity lead to new trailer builds in the $170,000 to $180,000 range for the last couple of years, which is where it's remained. I think there was some optimism going into this year that maybe the year would be flat to even slightly up. We haven't seen that. I think latest projections are that new trailer builds will be down, you know, mid-single digits for this year, sort of what we're experiencing right now. The aftermarket's holding on pretty well, and we continue to be at least three quarters servicing the aftermarket, but the new OEM side really drives the entire cycle, and it's a really important specification launch platform for us. There are some promising signs of that market inflecting, but we're not counting on that this year. I think most industry projections are that they'll see growth in the industry for new trailers in 2027. We're not contemplating any kind of return to growth in 2026. But we're optimistic, as we mentioned on Tuesday, that we've sort of seen the trough in that industry in the first quarter.

Oh, I'll also add that over the last two and a half years, you know, the commercial vehicle, our commercial vehicle revenue is down more than $30 million. Yet, over that time period, sailing technology segment level profitability has been maintained well above 30%. So that kind of gives you an indication of the quality of our commercial vehicle exposures, even despite, you know, weaker volumes. Our teams have done an excellent job pulling appropriate variable cost levers during volume declines to preserve profitability. Excellent work. And indicative of how many of our teams throughout the company behave.

yeah no absolutely um yeah definitely a testament to the you know kind of best practices and operational excellence there um and then you know just to touch on two other end markets uh briefly um aerospace is certainly um you know been growing in the portfolio i think last year was you know relatively strong with some you know customer activity so maybe talk to a little bit about that. Um, and then same on the power generation side, uh, as far as, you know, nuclear exposure, uh, that'll be helpful to understand. Okay, great. Yeah. I'll hit aerospace

and then maybe James, you can talk about the nuclear side. So yeah, we've seen a strong growth in both space and commercial aerospace side of our overall aerospace exposure. Um, we're partnering with the key space launch providers in the U.S., all of them, in supporting their needs for sealing capabilities and in multiple applications. You know, there's no doubt that the demand for launches significantly outpaces the supply at the moment and is expected to for a number of years. And we're supporting all of our customers to try to meet that demand the best they can. That's a space that grew over 20% for us last year, and we expect we'll see significant growth again this year. We've made multiple investments in multiple facilities over the last 12 months to support that growth with new capacity, and that's gone very, very well. On the commercial aerospace side, you know, we have some areas that we've responded very well to be the partner of choice for some of the aerospace integrators in several applications, whether it be to resolve an incumbent issue or, you know, react to a customer's problem or to proactively partner on new platforms. Aerospace is another segment where, you know, we're positioned well, we continue to be a supplier of choice, and we expect to continue to see growth there. James, you want to talk about?

In terms of power generation, you know, we do have pockets of, you know, growing but small pockets within hydrogen and natural gas production, but the vast majority of our power generation revenue is nuclear solutions. That's largely an aftermarket business, but we do participate in any new builds or any future SMRs we will have content on, especially when it comes to either containing, you know, radioactive waste as, you know, transmission is occurring or maintaining very critical sealing capabilities at these reactors. And that is a highly regulated, very consistent aftermarket business for us. So as nuclear energy continues, we should enjoy above-segment growth in both aerospace and power generation. And both of those areas do tend to present us with higher margins than the fleet average in the ceiling technology segment.

Got it. Yeah, understood. And then, you know, just to maybe touch on kind of the cost base of the business, you know, probably more so on the ceiling side, but, you know, the topic last year was mainly on tariffs. But, you know, maybe if you could just highlight kind of any exposure, you know, with with product there, you know, and any like input costs that, you know, that we should consider. You obviously have maintained very strong margins in the ceiling business. So maybe just talk to a little bit about the tariff exposure and then on the AST side, you know, kind of how you see margins progressing as platforms kind of ramp there.

Yeah, on the tariff environment, I mean, we've talked over the last year that, you know, tariffs for us are very minimal and manageable. Our business teams, commercial teams, operational teams, supply chain teams have done a really nice job over the last five to seven years, really future proofing our entire supply chain, right? We've localized supply chains in a number of geographies. We're predominantly in region for region, almost everywhere that we operate. We have diversified supply bases. So, you know, again, our model is to be able to perform well in any environment and to have strong value chains with, you know, agile business leaders who can react and perform well in any environment. So supply chain optimization has always been a key part of that. And our teams have prepared well for these types of things. Of course, you know, you're managing through it and pulling levers here and there, but, you know, we're well prepared to do that. We talked about our tariff exposure is in the neighborhood of like $1.2 million to $1.5 million per quarter. And the teams have done a nice job to kind of minimize any impact through a number of different, you know, offsetting factors, whether it be price, continued supplier optimization, additional regionalization opportunities, et cetera, et cetera. So, you know, for us, like Eric Garcia likes to say, it's just Tuesday for us, right? It's just the next thing that we have to, you know, manage through. We don't have a significant exposure. And when we create agile business leaders with strong acumen, you know, we were able to well handle those types of things, keep executing for our customers through any environment. I would just like to add, too,

you know, we're a very small batch manufacturer. We engineer what we produce for our customers, and these are critical safety environmental protection components that enable us to have value pricing levers, and we tend to be leaders in the niches upon which we compete, and we don't have we don't produce hundreds of thousands of anything it's a highly customized you know low volume high mixed manufacturing network that's incredibly efficient with pricing

power yeah absolutely thanks thanks for adding that um and now you know just turning to capital allocation and the balance sheet you know leverage is in a very good spot now um maybe just walk through some of the capital priorities, you know, potential for additional acquisitions in the M&A pipeline, and then, you know, could touch on shareholder returns as well.

Yeah, as you mentioned, Isaac, we're sitting at 1.9 times right now, levered well within our stated range of one and a half to two and a half, which is where we like to operate most of the time. Our growth algorithm and our cash generation capabilities say we can operate within that environment for the next five years and deploy about a billion and a half to M&A, even after capital allocation to CapEx for growth. So our two priorities are clearly to support organic growth with value-creating CapEx, two-thirds of which are CapEx right now is going to growth and cost opportunities, but the majority of that is growth. We intend to spend 3.5% to 4.5% of sales overall into value-creating CapEx. Like I said, two-thirds of that is going to growth. We don't have a heavy maintenance and reliability and environmental draw on CapEx. It's really about value creating CapEx. And this year we talked about $50 million is our rough estimate of what we'll spend to CapEx. And then on the M&A side, like I said, we have the ability to deploy $250 to $300 million on average over the next five years. We consider opportunities in all size ranges, but we're predominantly focused in the roughly $100 million to $400 million enterprise value range. We have a very strict criteria of what it means to be an N-Pro business from a strategic criteria perspective that we kind of reiterated our algorithm earlier, and both on the financial side with our margin and financial return. The pipeline is heating up. The level of activity, there's no doubt that is increasing. And it seems like there's more comfort level around 2026 in general out there in the market. And so we're seeing more of the things that have been in our high priority pipeline look like they may be actionable this year. So we're optimistic about that. We have a very active pipeline in multiple segments that we talked about earlier and, you know, continues to be a really important growth lever for us.

great um so yeah i think that covers a lot of our questions i mean if there's any final takeaways or closing remarks you'd like to make um certainly been exciting seeing you guys shift towards the phase three of npro uh but yeah any kind of final takeaways that uh you want to leave

us with no just in general right we have 4 000 colleagues at npro right now they're all focused on their acceleration of personal and profitable growth excited about npro 3.0 um you know we reiterated our our growth algorithm uh a couple days ago and we increased our guidance as we like to say life is good at mpro absolutely uh well thanks so much joe and james this was

really helpful um great overview of the business and certainly learned a lot um so thanks so much for joining and hope you guys have a great rest of the day great thank you very much thanks very much. Take care.