NPRO (NPO) Q3 2025: AST Revenue Jumps 17%, Margin Expansion Hinges on Advanced Node Ramp
Advanced Surface Technologies (AST) delivered standout 17% growth, but margin expansion remains tied to the pace of advanced node qualification and normalization of growth investments. Sealing Technologies maintained high profitability despite OEM softness, with new acquisitions poised to accelerate compositional analysis and biopharma exposure in 2026. Management raised full-year guidance to the high end, but signaled ongoing near-term choppiness in semiconductor tools and legacy platform transitions, keeping the margin recovery timeline a key investor focus.
Summary
- AST Growth Outpaces Legacy Weakness: Advanced Surface Technologies revenue rose sharply, yet margin expansion is deferred as investments outpace near-term demand.
- Acquisition Integration Targets Secular Growth: Overlook and Alpha deals build scale in biopharma and compositional analysis, enhancing recurring revenue mix.
- Margin Leverage Relies on 2026 Ramp: Margin normalization and incremental returns hinge on advanced node qualification and capital equipment spending recovery.
Performance Analysis
Enpro posted nearly 10% organic sales growth in Q3, led by a robust 17% surge in Advanced Surface Technologies (AST), which benefited from precision cleaning demand for advanced node chip production and improved semiconductor tool sales. Sealing Technologies delivered 5.7% sales growth, with strength in aerospace, food, and biopharma offsetting persistent weakness in commercial vehicle OEM and tepid industrial demand in Europe and Asia. Segment profitability remained a highlight, with Sealing Technologies sustaining EBITDA margins above 32%, while AST margins landed just above 20% as growth investments and mix shifts diluted operating leverage.
Adjusted EBITDA grew 8% year over year, but total margins compressed slightly as operating expenses increased to support future growth and qualification work in AST. Free cash flow generation improved to $105 million year-to-date, reflecting higher net income and lower interest expense. The company’s balance sheet remains conservative, with net leverage at 1.2x pre-acquisition and projected to move to 2x post-close of the two recent deals. Capital expenditures are tracking to $50 million for the year, supporting ongoing capacity and innovation initiatives.
- AST Outperformance: Precision cleaning and advanced node demand drove double-digit AST growth, but margin leverage lagged due to upfront investment and unfavorable mix.
- Sealing Technologies Margin Resilience: Despite OEM and regional headwinds, Sealing maintained profitability at the high end of target ranges, driven by strategic pricing and aftermarket strength.
- Acquisition Contribution: Overlook and Alpha expected to add $60 million revenue and $17-18 million EBITDA in 2026, with initial Q4 contribution included in updated guidance.
Management’s full-year guidance was raised to the top end of prior ranges, reflecting acquisition impact and solid execution, but the outlook for AST margin expansion is explicitly tied to the timing of advanced node ramps and normalization of growth investments into 2026.
Executive Commentary
"The strength of our business model was demonstrated again during the quarter with total Enpro adjusted EBITDA margin above 24%, which included increased operating expenses supporting both growth initiatives in both segments."
Eric Valancourt, President and Chief Executive Officer
"We saw an acceleration in certain areas of AST, including in precision cleaning solutions tied to advanced node chip production, supporting applications such as artificial intelligence and high bandwidth memory. However, demand for capital equipment remains choppy."
Joe Bruderich, Executive Vice President and Chief Financial Officer
Strategic Positioning
1. AST: Advanced Node Qualification and Regionalization
AST’s growth was driven by precision cleaning solutions for advanced node chips, with accelerated qualification work in Taiwan and the U.S. to meet customer timelines. The business is increasingly exposed to advanced logic and AI chip production, but near-term demand for legacy tools remains volatile. The shift of legacy product lines to Southeast Asia, in response to customer regionalization, pulled forward $12 million in 2025 revenue that will not recur in 2026, highlighting the need for a sustainable advanced node ramp to drive future margin expansion.
2. Sealing Technologies: Aftermarket and Secular Growth Bets
Sealing Technologies continued to deliver high-margin performance, supported by robust aftermarket demand (65% of segment revenue YTD) and resilience in aerospace and biopharma. Strategic pricing offset OEM softness and weak industrial demand in Europe and Asia. The segment’s focus on critical process markets—such as life sciences, hydrogen, energy storage, and digital infrastructure—aligns with secular growth, while targeted investments prepare for eventual recovery in commercial vehicle OEM and nuclear markets.
3. M&A: Building Recurring Revenue and Technical Depth
The acquisitions of Overlook Industries and Alpha Measurement Solutions expand Enpro’s capabilities in single-use biopharma technologies and compositional analysis, both secular growth areas with strong technical barriers and recurring revenue streams. Management emphasized the fit with Enpro’s business model—technical competence, customer intimacy, and leadership—and expects these deals to be immediately accretive, with margin profiles comparable to core Sealing Technologies. Leadership signaled further M&A appetite in compositional analysis, aiming to deepen innovation and integration opportunities.
4. Capital Allocation: Disciplined Investment and Shareholder Returns
Enpro maintained a disciplined capital allocation approach, balancing growth investments, M&A, and shareholder returns. The company paid $19.7 million in dividends YTD and retains a $50 million share repurchase authorization. CapEx remains elevated to support organic growth in both segments, with management indicating continued investment as long as the pipeline of high-return opportunities persists.
Key Considerations
This quarter’s results reinforce Enpro’s dual-engine model—leveraging high-margin, recurring aftermarket business in Sealing Technologies, while investing for secular growth in AST and adjacent technologies.
Key Considerations:
- Advanced Node Ramp Critical for AST Margins: Margin expansion in AST depends on revenue realization from advanced node qualification work, with normalization expected in the second half of 2026.
- Acquisitions Target High-Value, Recurring Markets: Overlook and Alpha bring exposure to biopharma and compositional analysis, both characterized by strong customer stickiness and technical differentiation.
- Legacy Platform Transition Creates Near-Term Headwind: The shift of legacy semiconductor tools to Asia pulls forward revenue but creates a gap for 2026, emphasizing the need for new platform growth to fill the void.
- CapEx and Growth Investment Remain Elevated: Management expects to sustain CapEx at 3.5-4.5% of sales, supporting both organic and inorganic growth levers.
- Aftermarket and Pricing Power Buffer Volatility: Sealing’s high aftermarket mix and pricing discipline help offset cyclical OEM and regional market weakness.
Risks
Margin recovery in AST is highly sensitive to the timing of advanced node qualification and customer capital spending, while legacy platform transitions create a potential revenue gap in 2026. Political uncertainty in nuclear (notably in France) and persistent commercial vehicle OEM softness add cyclical risk. Elevated CapEx and acquisition integration could pressure returns if demand recovery lags or expected synergies do not materialize.
Forward Outlook
For Q4, Enpro guided to:
- Continued strength in Sealing Technologies, especially in aerospace, food, and biopharma
- Sequential deceleration in AST sales, with ongoing choppiness in semiconductor capital equipment and legacy transitions
For full-year 2025, management raised guidance to:
- 7-8% total revenue growth
- Adjusted EBITDA of $275-280 million
- Adjusted EPS of $7.75-8.05
Management underscored that AST margin expansion and incremental returns are expected to materialize as advanced node platforms ramp in the second half of 2026, and that Sealing Technologies should sustain high-end profitability as new acquisitions integrate.
- Partial Q4 contribution from acquisitions included in updated guidance
- CapEx to remain at elevated levels to support growth
Takeaways
Enpro’s Q3 2025 results highlight a business in transition, with robust growth in advanced technologies but margin leverage deferred as investments precede revenue. The company’s ability to integrate new acquisitions and capitalize on secular demand in biopharma and compositional analysis will be critical to sustaining its high-margin profile as legacy headwinds persist.
- AST Margin Leverage Deferred: Investors should monitor the timing of advanced node qualification and capital equipment recovery, as these will dictate the pace of margin normalization.
- Sealing Technologies Remains a Margin Anchor: Aftermarket and pricing power continue to buffer volatility, even as management invests for future secular growth.
- 2026 Will Be a Pivotal Year: The integration of Overlook and Alpha, and the transition from legacy to advanced platforms, will test Enpro’s ability to deliver on its compounding growth thesis.
Conclusion
Enpro’s Q3 demonstrated strong execution in growth segments and disciplined capital deployment, but the path to margin expansion in AST is contingent on advanced node revenue ramping in 2026. Sealing Technologies continues to provide stability, while recent acquisitions position the company for secular growth in high-value markets.
Industry Read-Through
Enpro’s results reinforce several key trends for the industrial technology sector: Precision cleaning and advanced node exposure are critical for suppliers tied to semiconductor and AI infrastructure, but capital equipment spending remains volatile and regionalization is shifting demand patterns. Recurring aftermarket and process-critical component businesses offer margin stability in cyclical environments, while compositional analysis and biopharma single-use technologies are emerging as attractive, defensible growth niches. Peers with exposure to legacy platforms will need to accelerate new platform adoption or face revenue headwinds as regionalization and technology transitions reshape the competitive landscape.