EnPro (NPO) Q4 2025 Earnings Call Transcript

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DATE

Wednesday, Feb. 18, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

• President & Chief Executive Officer — Eric A. Vaillancourt
• Executive Vice President & Chief Financial Officer — James Gentile
• Chief Operating Officer — Joseph F. Bruderek

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TAKEAWAYS

• Revenue -- Sales increased 14.3% to $295,400,000 in the fourth quarter.
• Organic Sales Growth -- Organic sales rose approximately 10% in the fourth quarter.
• Adjusted EBITDA -- Adjusted EBITDA grew 19.2% to $69,400,000 for the fourth quarter, with margin expanding 100 basis points to 23.5%.
• Adjusted Diluted EPS -- Adjusted diluted earnings per share reached $1.99, up nearly 27% from the prior-year period.
• Sealing Technologies Segment -- Segment sales reached $187,100,000, increasing almost 15%, with adjusted segment EBITDA margin rising 180 basis points to 32.8%.
• Advanced Surface Technologies (AST) Segment -- Segment sales were $108,400,000, up 13.4%; adjusted segment EBITDA rose approximately 3%, maintaining a margin above 20%.
• Acquisitions -- Partial quarter contributions from the Alpha Measurement Solutions and Overlook Industries acquisitions supported growth in both revenue and profitability.
• Free Cash Flow -- Free cash flow exceeded $150,000,000 for 2025, up 18% from $130,000,000 in 2024, net of property, plant, equipment, and capitalized software expenditures.
• Dividend Policy -- The company paid a $0.31 per share quarterly dividend ($26,200,000 total for 2025) and announced an increase to $0.32 per share, marking the eleventh consecutive annual increase.
• Net Leverage Ratio -- The year-end net leverage ratio was 2 times, accounting for the $280,000,000 in acquisitions completed during the year.
• 2026 Guidance: Sales Growth -- Management expects sales growth of 8%-12% for 2026, inclusive of an estimated $60,000,000 from Alpha and Overlook.
• 2026 Guidance: Adjusted EBITDA -- Adjusted EBITDA is projected in the $320,000,000-$350,000,000 range, including $16,000,000-$17,000,000 from recent acquisitions.
• 2026 Guidance: Adjusted Diluted EPS -- Adjusted diluted earnings per share is forecast at $8.50-$9.20, with a normalized 25% tax rate and approximately 21,300,000 fully diluted shares outstanding.
• 2026 Guidance: Capital Expenditures -- Capital expenditures are expected to be approximately $50,000,000 or around 4% of sales.
• Sealing Technologies 2026 Outlook -- Revenue is projected to approach 15% growth (including acquisitions), with mid single-digit organic growth, and segment EBITDA margin expected to remain above 30%.
• Advanced Surface Technologies 2026 Outlook -- AST sales are expected to grow at high single digits, with a stronger second half; segment EBITDA margin is anticipated to expand during the year.
• Safety Performance -- The company achieved a total recordable incident rate of 0.64 and lost time case rate of 0.09 in 2025, representing its best-ever safety statistics.

SUMMARY

EnPro Industries (NYSE:NPO) reported a double-digit increase in revenue for the fourth quarter, with both Sealing Technologies and Advanced Surface Technologies contributing. Management reaffirmed a continuation of strategic priorities under "EnPro three point zero," emphasizing organic growth, margin expansion, disciplined capital deployment, and a robust acquisition pipeline. Fourth quarter results included positive impacts from newly integrated acquisitions, with substantial cash generation and increased shareholder returns through the eleventh dividend increase approved since 2015.

• Management noted, "We are seeing customer order patterns continue to accelerate," with improved booking rates set to drive second half growth and margin expansion, particularly in AST.
• Precision Cleaning Solutions and new platform rollouts are expected to support performance as "growth investments that will start to get some legs probably in the late second half of this year."
• Capital allocation priorities remain focused on additional strategic M&A, with a strong deal pipeline and financial flexibility to invest "two-thirds or more" of capex in growth projects.
• Although commercial vehicle OEM demand remains down, management stated, "aftermarket drivers in that market remain firm," and expects steady recovery over time.
• Integration of Alpha and Overlook is described as "very seamless," with both expected to deliver at least high single-digit growth going forward.

INDUSTRY GLOSSARY

• Adjusted EBITDA: Earnings before interest, taxes, depreciation, and amortization, excluding certain non-recurring or non-cash items, used as a measure of operating performance.
• AST (Advanced Surface Technologies): Segment providing specialty cleaning, coating, and component solutions for critical semiconductor and industrial applications.
• Sealing Technologies: Segment focused on manufacturing seals, gaskets, and related engineered solutions serving industrial and process customers.
• Net Leverage Ratio: The ratio of total net debt to EBITDA, used to assess financial leverage and balance sheet strength.
• Total Recordable Incident Rate (TRIR): Standard OSHA metric measuring the number of recordable workplace injuries per 200,000 hours worked.
• Lost Time Case Rate: OSHA-defined measure of the number of work-related injuries resulting in lost work time per 200,000 hours worked.

Full Conference Call Transcript

Eric A. Vaillancourt: there's been tremendous pride, motivation, and focus throughout EnPro Industries, Inc. The inherent balance and quality of our portfolio shined once again in 2025.

James Gentile: Our

Eric A. Vaillancourt: teams have made considerable progress aligning the organization to our long-term strategic goals by leveraging our core capabilities, engineering expertise to expand new commercial opportunities while steadily finding ways to optimize our foundation. We advanced our strategic goals in the first year of EnPro three point zero by growing organically at 7.6%, holding or expanding margins despite increases in operating expenses supporting growth initiatives, deploying two-thirds of our capital expenditures towards growth and efficiency projects, allocating $280,000,000 toward value-creating M&A with acquisitions of Alpha and Overlook, delivering total shareholder returns above premium peers, achieving and maintaining premium valuation reflective of a differentiated industrial technology franchise.

As a learning organization, each of our colleagues completed a minimum 16 hours of training and personal development this year. We have clear line of sight in areas of the business where we can accelerate the growth and profit performance, and are excited to work on these value-creating levers again in 2026. Our growth priorities underpinning the EnPro three point zero strategy remain unchanged and will guide our performance through 2030. Over the long term, we are positioned to generate mid to high single-digit organic top-line growth with strong profitability and return levels.

We are targeting mid single-digit organic growth in Sealing Technologies, while at AST we are targeting at least high single-digit organic growth, with both segments capable of generating 30% adjusted segment EBITDA margins plus or minus 250 basis points. Now on to our full year 2025 performance. EnPro Industries, Inc. performed well in 2025 with sales up 9% to $1,140,000,000. Strength in aerospace, food and biopharma, firm domestic general industrial performance, as well as improving performance in semiconductor markets were the primary drivers of the 7.6% increase in organic sales.

Complementing our strong organic results were the partial quarter contributions from the acquisitions of Alpha Measurement Solutions and Overlook Industries completed in 2025, in addition to the AMI acquisition completed in late 2024. The Alpha and Overlook teams are energized and are hitting the ground running, and we are delighted with their performance since they joined our EnPro Industries, Inc. family. We continue to be pleased with best-in-class performance for our Sealing Technologies segment. As well, I am encouraged by AST's steady performance during the choppiness we experienced in semi capital equipment spending over the last few years.

In all, we have been able to maintain premium profitability, free cash flow, and solid returns on invested capital despite the persistent weakness experienced in areas of semiconductor and commercial vehicle OEM demand through 2025, while continuing to invest to support growth programs at AST and throughout the organization. In Sealing Technologies, disciplined execution and efficient operations drove an adjusted segment EBITDA margin of over 32% for the second year in a row. Our teams are positioning the businesses to drive above-market growth by leveraging our applied engineering capabilities, durable aftermarket characteristics, and specification positions to deliver important solutions to our customers in areas where we have clear technology and process advantages.

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

Operator: At AST, revenue increased nearly 14% with strength in

Eric A. Vaillancourt: solutions serving leading-edge applications and pockets of recovery in semiconductor capital equipment demand. We continue to proactively invest capital and operating resources throughout 2025 in preparation for new platforms in anticipation of a recovery in semiconductor capital equipment spending. We are encouraged by the recent improved order flow in AST that will begin to be realized in 2026. We remain well positioned to participate in a stronger semiconductor market in coming periods while also seeking 80/20 improvements and cost realignment opportunities to drive incremental improvement in segment profitability over time. Thanks to the inherent balance and quality of the EnPro Industries, Inc. portfolio, and the resilience of our business model, 2025 marked another year of robust free cash flow generation.

Our cash flow allows us to maintain our strong balance sheet with a net leverage ratio of 2 times after taking into account the recently completed acquisitions of Alpha and Overlook purchased for $280,000,000 in aggregate. Looking ahead to 2026 and beyond, we have ample financial flexibility to execute on our growth and optimization objectives and deliver premium results for all stakeholders. Under our EnPro three point zero strategy, we are positioned to accelerate profitable growth through 2030.

We are making considerable progress on our key growth priorities, will continue to pursue select strategic acquisitions that fit our strategic characteristics of an EnPro Industries, Inc. business, drive incremental long-term growth, and add complementary talent, technology, and process expertise that expands EnPro Industries, Inc.'s ability to answer critical needs of our customers. The foundation of this strategy is designed to extend our track record of strong shareholder returns and enterprise value growth while creating opportunities for our colleagues to develop and thrive. We have the right positioning and discipline to deliver on these targets, especially as we reinvest in growth nodes across the portfolio and drive continuous improvement to maintain and opportunistically improve profitability.

At the same time, with our dual bottom line culture as a cornerstone, we encourage each of our nearly 4,000 colleagues to accelerate their personal and professional growth again in 2026. Our colleagues have made commitments to themselves and their teams to work on leadership and communication skills, financial acumen, psychological safety, and awareness. Our team will continue down this path of value creation as we empower technology with purpose. Joe? Thank you, Eric, and good morning, everyone. Turning to our results for the quarter. EnPro Industries, Inc. performed well in the fourth quarter, reflecting momentum across the portfolio and continued progress executing our EnPro three point zero strategy. In the fourth quarter, sales increased 14.3% to $295,400,000.

We saw strong sales performance in aerospace and food and biopharma within Sealing Technologies.

James Gentile: As well as improvement in overall AST sales led by continued strength in precision cleaning solutions supporting leading-edge semiconductor production. In addition, strategic pricing initiatives,

Eric A. Vaillancourt: the partial quarter contributions from Alpha and Overlook, and firm domestic general industrial performance helped offset slow commercial vehicle OEM sales and slow industrial sales internationally.

James Gentile: Organic sales increased approximately 10%. Fourth quarter adjusted EBITDA of $69,400,000 was up 19.2% and adjusted EBITDA margin of 23.5% was up 100 basis points. Continued robust performance in the Sealing Technologies segment,

Eric A. Vaillancourt: and the partial quarter contribution from the acquisitions completed during the quarter,

James Gentile: were partially offset by increased operating expenses ahead of growth programs largely in AST. Corporate expenses of $14,200,000 were up $800,000 from a year ago primarily due to increased medical costs.

Eric A. Vaillancourt: Adjusted diluted earnings per share of $1.99 increased nearly 27% compared to the prior year period.

James Gentile: Largely driven by the factors increasing adjusted EBITDA and lower interest expense tied to lower net borrowings. Moving to a discussion of segment performance. Sealing Technologies sales of $187,100,000 in the fourth quarter increased almost 15% versus last year. Healthy demand in aerospace and food and biopharma markets, strategic pricing actions, firm domestic general industrial sales,

Eric A. Vaillancourt: and the partial quarter contribution from acquisitions completed during the fourth quarter,

James Gentile: offset continued weakness in commercial vehicle OEM demand

Eric A. Vaillancourt: and slow industrial markets internationally. Nuclear sales remained temporarily choppy during the quarter in Europe as well.

James Gentile: Organic sales were up nearly 8% year over year.

Eric A. Vaillancourt: For the fourth quarter, adjusted segment EBITDA increased more than 21% with adjusted

James Gentile: segment EBITDA margin expanding 180 basis points to 32.8%. Strategic pricing, improved volume and the additions of Alpha and Overlook,

Eric A. Vaillancourt: as well as firm aftermarket demand in the commercial vehicle market also contributed

James Gentile: to the consistent year-over-year profit performance.

Eric A. Vaillancourt: We expect best-in-class performance in Sealing Technologies to continue.

James Gentile: 65% of the segment sales are tied to critical positions in the aftermarket, offering the segment stability during periods of uncertainty.

Eric A. Vaillancourt: In addition, we continue to earn new business by leveraging the segment's technological expertise,

James Gentile: process know-how, and applied engineering capabilities to drive above-market organic revenue growth and to help our customers safeguard their critical environments.

Eric A. Vaillancourt: Overall, Sealing Technologies is well positioned to drive mid single-digit top-line growth organically,

James Gentile: with strong profitability during EnPro three point zero. Turning to Advanced Surface Technologies.

Eric A. Vaillancourt: In the fourth quarter, sales increased 13.4% to $108,400,000. We saw continued strength in precision cleaning solutions tied to leading-edge applications,

James Gentile: along with pockets of strength in precision components

Eric A. Vaillancourt: supporting semiconductor capital equipment and growth in optical coatings. Adjusted segment EBITDA increased approximately 3% versus last year. Adjusted segment EBITDA margin remained above 20%.

James Gentile: We continue to invest in certain areas of the segment to support strength we are seeing in the leading edge.

Eric A. Vaillancourt: Increased expenses supporting growth programs, which totaled approximately $2,000,000 in the fourth quarter and more than $8,000,000 for the full year,

James Gentile: continued ahead of revenue.

Eric A. Vaillancourt: Last quarter, we discussed a number of factors that will drive our near-term

James Gentile: performance in AST. We expect lower sales growth year over year in the first half followed by improved performance in the second half as Eric noted, evidenced by current order

Eric A. Vaillancourt: patterns.

James Gentile: Also, as a reminder, we shipped $12,000,000 of safety stock inventory in 2025 to support customer supply chain transitions, which we do not expect to recur in 2026. On the cost side, we continue to make progress on optimization plans in AST and remain committed to expanding AST margins through appropriate operating leverage on sales growth,

Eric A. Vaillancourt: especially as we begin to realize the benefits of investments in operational resources supporting growth programs in coming quarters. We are well positioned to support our customers during the upcoming ramp.

James Gentile: And remain focused on delivering AST profitability towards 30% of sales plus or minus 250 basis points on high single-digit to low double-digit revenue growth within the EnPro three point zero planning horizon.

Eric A. Vaillancourt: Turning to the balance sheet and cash flow.

James Gentile: Our balance sheet remains strong, and we exited 2025 with a net leverage ratio of 2 times, inclusive of the $280,000,000 in cash used to acquire Alpha Measurement Solutions and Overlook Industries during the fourth quarter. We continue to generate ample free cash flow to invest the necessary capital and operating expenses into our strategic organic growth opportunities. In 2025, we generated more than $150,000,000 in free cash flow net of $48,000,000 of property, plant and equipment and capitalized software expenditures in 2025. This was up 18% from the $130,000,000 in 2024 net of $33,000,000 of capital expenditures. During the fourth quarter, we substantially completed and settled the termination of EnPro Industries, Inc.'s U.S. defined benefit pension plan.

As a result of this transaction, EnPro Industries, Inc. incurred a non-cash settlement loss of $67,200,000 which was recorded to other non-operating expense,

Eric A. Vaillancourt: primarily associated with recognition of life-to-date actuarial losses attributed to the plan previously deferred in accumulated other comprehensive income. During this plan settlement process,

James Gentile: existing plan assets more than fully satisfied the cash settlement obligations. Overall, we maintain ample financial flexibility to execute our strategic initiatives, both organically and through strategic acquisitions that broaden our capabilities. Earlier last year, we expanded our revolving credit facility to $800,000,000 from $400,000,000 previously and currently have more than $580,000,000 of available capacity. We are also maintaining our commitment to return capital to shareholders, and during 2025, we paid a $0.31 per share quarterly dividend totaling $26,200,000 for the year.

Eric A. Vaillancourt: On February 13, our Board of Directors approved another increase to the quarterly dividend to $0.32 per share,

James Gentile: representing the eleventh consecutive annual increase since we initiated a quarterly dividend in 2015.

Eric A. Vaillancourt: Moving now to our 2026 guidance.

James Gentile: Taking into consideration all the factors that we know currently, we expect total EnPro Industries, Inc. sales growth to be in the range of 8% to 12% in 2026, including the contribution of approximately $60,000,000 from the acquisitions of Alpha and Overlook completed in 2025. We expect adjusted EBITDA to be in the range of $350,000,000 to $320,000,000 including $16,000,000 to $17,000,000 contributed from the recent acquisitions. Adjusted diluted earnings per share is expected to be in the range of $8.50 to $9.20. The normalized tax rate used to calculate adjusted diluted earnings per share remains at 25%, and fully diluted shares outstanding are approximately 21,300,000.

Capital expenditures in 2026 are expected to be approximately $50,000,000, or around 4% of sales, as we continue to invest in growth opportunities across the company at accretive margin and return thresholds. In the Sealing Technologies segment, we expect revenue growth,

Eric A. Vaillancourt: including the contributions from the fourth quarter acquisitions of Alpha and Overlook, to approach 15% in 2026.

James Gentile: With mid single-digit organic growth for the year. We see continued strength in aerospace and food and biopharma markets and steady domestic general industrial demand drivers.

Eric A. Vaillancourt: We expect our commercial excellence programs, new growth programs leveraging differentiated capabilities, and focus on solving critical problems for our customers to drive above-market growth this year.

James Gentile: While we do not expect a significant recovery in commercial vehicle OEM demand to occur in 2026, aftermarket drivers in that market remain firm. We expect strong operational performance to continue in Sealing Technologies, with adjusted segment EBITDA margin to again exceed 30% this year. In the Advanced Surface Technologies segment, we are seeing clear signs of a robust recovery in semiconductor capital equipment spending as capacity for leading-edge applications gains momentum. Today, we expect AST sales to grow high single digits inclusive of the previously mentioned $12,000,000 of equipment sales that we do not expect to recur this year, with the second half of 2026 being stronger than the first half.

Precision Cleaning Solutions is expected to perform well throughout the year as fab utilization and expansion of capacity for leading-edge applications accelerates. On the equipment side, we expect growth to accelerate as we move through the year, predominantly driven by a second half improvement multiple industry sources are predicting will occur,

Eric A. Vaillancourt: and supported by our recent order patterns.

James Gentile: We also expect demand for optical coatings to grow as demand signals improve in semiconductor and communications infrastructure markets. We expect to see adjusted segment EBITDA margin expansion in AST in 2026, with margins increasing throughout the year. We expect AST's second half profitability to be materially better than current run rates as demand improves and we begin to leverage our recent growth investments.

Eric A. Vaillancourt: Thank you for your time today, and I will now turn the call back to Eric for closing comments. Thanks, Joe. We got so excited to talk about our results and future, we jumped right over our world-class safety performance. So I want to take a minute to recognize our teams across the company for their excellent safety performance in 2025. Safety is our first core value at EnPro Industries, Inc., and we begin every meeting with our safety pledge, striving to achieve an injury-free and psychologically safe workplace. Every day, we look after each other. We make sure we return home safely to our loved ones.

In 2025, we recorded our best safety statistics ever with a total recordable incident rate of 0.64 and lost time case rate of 0.09. Our world-class safety results reflect the day-to-day commitment of our engaged environmental, health and safety communities of practice to steadfast leadership and development of strong repeatable processes that enable us to achieve these terrific outcomes. I would like to celebrate these milestones as we continue to strive towards an injury-free workplace. Our value-creating strategy remains unchanged and we are energized to deliver another year of strong performance and execution for our customers and shareholders in 2026.

We will continue to invest in areas where we are strongest while pursuing strategic acquisitions that build upon our leading-edge capabilities at attractive growth and margin levels. I want to again recognize our dedicated colleagues across the company who are the driving force behind our success. Thanks to their contributions, we have a clear path to achieve our vision for EnPro three point zero. Thank you for joining us today. Life is good at EnPro Industries, Inc., and our best days are ahead. We now welcome your questions.

Operator: Thank you. We will now open for questions. Our first question today is coming from Jeffrey David Hammond from KeyBanc. Your line is now live. Hey, good morning, guys.

James Gentile: Good morning, Jeff. Good morning, Jeff.

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

Joseph F. Bruderek: Sure, Jeff. I will talk about the cadence first half, second half, and a little bit about our margin

James Gentile: expectations and then turn it over to Eric to talk about current order demand and patterns and what we are seeing with our customers. So as we have been talking about, there are clear signs that the second half is going to be considerably stronger than the first half. I think you have seen that in a lot of expectations for market conditions across the semiconductor capital equipment guys. We are no exception. We are going to see moderate growth in the first half, I would think low to mid single digits.

Joseph F. Bruderek: Something like $100,000,000-ish sales for the first quarter and margins similar to what we have experienced over the last couple quarters. Things will accelerate through the year, and we expect some recovery starting in the second quarter,

James Gentile: and then materially into the

Joseph F. Bruderek: third and fourth quarter.

James Gentile: So there is no doubt we are going to be on significant

Joseph F. Bruderek: significantly higher growth rates as we move through the year, and we expect the second half to be stronger. At the same time, some of our key growth programs that we have been investing behind

Eric A. Vaillancourt: are set to start to materially contribute in the second half as well. So that is why we talked about margins in the second half being considerably stronger than the current run rate.

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

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

Eric A. Vaillancourt: Nuclear choppiness, I think, is going to continue for a little bit, although we did have a little better order rate right now. But I expect that second half will still be choppy. But in general, our industrial business throughout EnPro Industries, Inc. is very, very strong. There has not been any let up. We are not seeing any reduction in orders or anything that would indicate that it is slowing at this point. Still very strong, and still our book-to-bill is higher than 100%. So still strong right now.

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

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

Eric A. Vaillancourt: Even with the commercial vehicle segment being down, it was down so much before, 25%, 26%, whatever it was, being projected to be down another 9%, still not that many units. I expect that business to recover as the year goes on. Okay. Appreciate the color.

Operator: Thank you. Next question is coming from Stephen Michael Ferazani from Sidoti & Company. Your line is now live. Morning, everyone. Appreciate all the detail on the call. Just wanted to walk through how things played out the last couple of months of the year versus your November guide. Looks like revenue ended up running a little ahead of the guide, particularly on

Stephen Michael Ferazani: Sealing, on organic growth. But margins may be a little bit softer. Can you walk through what you saw both on top line and on margins? Looks like either AST costs are continuing to make those adds in the last couple months or perhaps it was on slightly higher corporate expense. Could you just walk through the revenue versus the margins the last couple of the couple of months of the year?

Eric A. Vaillancourt: Yes. Thanks, Steve.

Joseph F. Bruderek: Yes, I think things finished up pretty much as we expected through the end of the year. The sales were at the higher end of our range, but relatively in line. Margin was clearly right in the bull's-eye of what we expected from an EBITDA perspective. We did, as you mentioned, see a little bit higher corporate expenses as we moved through the year. Really two drivers: medical costs continue to increase, and we saw a spike in just claims and overall medical expenses.

And again, with our strong performance this year, we did have a little bit of higher short-term incentive cost associated with that outperformance, especially on our ECFRI metric, which is really driven by really good working capital management and strong free cash flow as we ended the year. So in general, I think fourth quarter pretty strong and as expected.

Operator: Yeah.

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

Joseph F. Bruderek: We expect strong free cash flow conversion as a percent of adjusted net income. The one thing, we will see a little bit higher interest expense in 2026, as we included in our EPS guidance, because we had periods of 2025 where we really had no draw on our revolver. And with the late-year acquisitions, we expect to be materially drawn on the revolver for most of this year. So that will require a little bit higher interest expense. But our balance sheet is in really good shape. At two times, strong free cash flow expected again this year. We are well positioned to continue to allocate $250,000,000 to $300,000,000 or more if needed for strategic M&A.

Our pipeline continues to be strong. We have multiple targets that we have been working for a number of periods that meet our financial and strategic criteria, and it is just an element of the timing and availability of those assets. We are getting a lot of early looks, which is a good sign. We are having discussions with a number of assets that have not even gone to market yet, cultivating those relationships and being ready for when they are actionable. We feel really good about our balance sheet. As you mentioned, we are stepping up, for the last couple years, into our CapEx investments.

The majority of that, two-thirds or more, going to growth investments both in AST and in Sealing. And that is probably the right appropriate level for us to continue compounding growth as we move forward.

Stephen Michael Ferazani: If I could just add one on in response to your answer. M&A focus, has that shifted at all of what you are looking at?

James Gentile: No.

Eric A. Vaillancourt: No. We continue to look very aggressively. We probably look at an asset once or twice a week. But we are very, very disciplined about what we approach, and it will be both strategic and appropriate in terms of value we pay.

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

Operator: Great.

Stephen Michael Ferazani: Thanks, everyone.

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

Joseph F. Bruderek: Hey, good morning. This is Isaac Sellhausen for Ian. I just had one on kind of the margin

Operator: expectations and ramp through the year.

Joseph F. Bruderek: Should we expect any higher

Isaac Sellhausen: OpEx associated with the qualification work in 2025? And should that continue this year? Or any additional color you can provide on the ramp through the year? Thanks.

Joseph F. Bruderek: Yes. Good morning, Isaac. I think materially, we are at the run rate for those additional operating expenses. We have been at that for a number of quarters where we have a number of additional growth opportunities kind of layering on top of each other. We talked about that last call. And we are at the run rate of about $2,000,000 a quarter right now of operating expenses ahead of demand. And with all of those, we are kind of at the point now where we are progressing well, and we will start to see revenue come in and leverage against those costs really throughout 2026. We always have growth programs going on. We always have investments ahead of revenue.

We just have a lot of them going on at the same time in multiple places, for additional growth opportunities, geographically, customer expansions, platform expansions. So we do not expect any incremental spending on those programs in the near term. We are just kind of at that similar run rate. And then as those programs deliver revenue as we move through 2026, they will leverage against that.

And that is why we said we are confident that the second half, not just because of demand improving from general capital equipment spending increase, but also from those growth programs delivering revenue and leveraging against those expenses, we will see some margin expansion as we move through the year and more predominantly in the second half.

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

Eric A. Vaillancourt: No, the businesses both have very good backlogs and very good order rates. And so right now, they are exceeding our expectations, and it is really full speed ahead. No concerns. The integration has been very seamless at this point.

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

Operator: Thank you. We have reached the end of our question-and-answer session. I would like to turn the floor back over to James for any further or closing comments.

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

Isaac Sellhausen: interest.

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.

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