Good afternoon, everyone. My name is John Franzreb. I am a Senior Analyst at Sidoti & Company. Our next presentation for the day is Ampco-Pittsburgh, ticker AP. For those who are not familiar with the company, Ampco is a holding company that operates two segments, Forged and Cast Engineered Products, and Air and Liquid Processing. We are fortunate to have with us today the entire team of Ampco. They will do a presentation of roughly a half hour in length. Should you have a question, please utilize the Q&A icon and submit those questions, and I will present them to management. With that said, gentlemen, thank you for being with us today. The floor is yours.
Thank you, John. Hello, everyone. My name is Brett McBrayer, the CEO of Ampco-Pittsburgh. Also joining me today is David Anderson, who is the CFO of Ampco-Pittsburgh, as well as a segment President for Air and Liquid Systems, and Sam Lyon, who is the President of Union Electric Steel. As John stated, we are a holding company. We have four distinct and unique businesses, very separate, different customer base. It is a holding that we have had in our portfolio for basically probably the last 20+ years. A little bit about the business. If you look at revenue mix, the segments, Union Electric Steel or Forged and Cast Engineered Products, as we call it, has 2/3 of the revenue, and about a 1/3 of that comes from the Air and Liquid System processing group. You can see the revenue for 2025, a little over $430 million.
Adjusted EBITDA margins around 6.7%. Backlog at the end of June of this year was around $385 million. The market cap at the end of June was roughly $180 million. If you look at the customers we serve, we are either number one or top tier in all the segments or customer bases we play in. The next slide, please, Dave. So why invest in Ampco-Pittsburgh? I think there are several things happening right now. First of all, you look at the Forged and Cast Engineered Products group, Sam's segment. We are just seeing a lot of interesting and positive dynamics happening in the marketplace. We are seeing the industry recover.
The Section 232 tariffs, which were put in place in the first Trump administration, maintained during the Biden administration, and then really improved upon, in our view, during the second Trump administration, has really driven steel and aluminum production growth in North America in particular. We are watching what Europe is doing, where they recently tried to copy our tariff system to protect their steel industry, come into effect at the end of July of this year, and we are starting to see the impact of that tighter quota system and higher tariffs starting to revitalize that industry. Although, in Europe, it is happening much slower than it is in the U.S. But some positive dynamics there. The other piece is the Air and Liquid Systems segment. The products we serve are in really, produce are in really, I would say, hot markets right now.
We're in a position where we can sell everything we make, and our challenge right now is how do we make things faster? How do we grow that business even more so than it has grown in the past several years? With the restructuring that we've recently done, we're seeing improvement in balance sheet and cash flow performance. If you look at the business from evaluation and strategic optionality, we think there's a lot of good plays with AP. Again, we're four very distinct businesses, and we have some options in the future on how we may choose to optimize our portfolio for further growth. A little bit about the strategic roadmap, and it's somewhat truncated. I've been with AP for eight years now. We've done a lot over the past several years of really trying to right-size the business.
Back in 2016, before I came on board, the prior administration, if you will, we had a lot of cash on the balance sheet, and the goal was to go out and buy our largest steel producing competitor in the marketplace and try to take share and command higher prices in the marketplace, and that strategic play did not work out. Unfortunately, it left us with a lot of businesses that were underperforming, underutilized, and losing a lot of cash. It's been a very slow process for us as cash has been tight in the past, and we've been slowly picking away and tearing out the parts of the business that didn't make sense.
The last big, heavy lift that we did has occurred actually last October, almost a year ago, when we exited our U.K. cast roll facility that was losing significant money, as well as a smaller distribution business in the U.S. As we look forward, it's all about capturing the impact of really the changed portfolio. We haven't really seen it fully hit the P&L yet. We'll start to see the full impact. We're seeing bits of it now, but we'll see the full impact in the fourth quarter of this year. This $7 million-$8 million of annualized EBIT improvement will start to show up and be reflected in our numbers.
We're seeing continued growth in Air & Liquid Systems, as I said before, in that segment, and we really want to focus on strengthening our balance sheet, getting our debt back in line, and we'll talk a little bit more about that in the upcoming slides. Future state is really just capturing the growth opportunities that are out there. We're excited about the opportunities that exist. Now I'm going to turn it over to Sam, who's the President again of the Forged and Cast Engineered Products segment.
Thank you, Brett. Just to expand a little bit on what Brett said. We are the number one Forged and Cast mill roll supplier in North America and top tier in Europe. We were number one in Europe prior to closure of the U.K. Still a critical supplier over there. One thing that is not on the slide that I think is important to know is that our products are consumables. As you roll steel, the mill roll actually wears out, and they have to be replaced. So 95% of what we make is replacement product, and 5% supports new project builds, new steel mills, new aluminum mills, and things like that. We are very well known in the industry. Customers all know us for our quality and customer service. As Brett said, the tariff structure is very favorable right now in North America and in Europe.
They have realized that they are going to lose a lot or most of their steel industry if they did not do something. As of July 1st of this year, they cut their quotas in half that they allowed to come into Europe tariff-free, and they doubled their tariff from 25% to 50%, and also implemented, just as the U.S. did, a melt and pour requirement. The steel has to actually originate in Europe. The expectation of that is that the mills will go from 65% utilization to north of 80%, which is a significant increase, which in turn will drive more demand for rolling mill rolls. The short-term focus is on asset utilization. By closing the U.K., we transferred product to Sweden and greatly increased their utilization, thereby increasing their profitability, which is important to our future profitability and growth.
One other comment on this slide is the Forged Engineered Products segment. That is our non-roll product used in automotive, plastic injection molding, oil and gas, general industrial. That has traditionally been a very small slice of the business. You can see it was 6% in 2025. That will be growing several percentage points closer to 10% moving forward. That is mainly due to the tariff structure. There are tariffs that prevent, or not prevent, but make the U.S. manufacturing base much more competitive against what used to be largely imports. So we are seeing a growth in both the volume and the profitability of that segment of our business. You can see on the bottom of the page all the major customers that we have across steel and aluminum. We can move to the next slide.
If we look at our revenue, 2021 was a low point. It has been pretty steady. The one comment I will make about 2025 is that number being or 2026 number is going to be similar to 2025, and that is mainly due to growth in the U.S. and then also transfer of product from the U.K. to Sweden. So despite closing U.K. and the exit of our small distribution business, our revenues remained fairly close to where it was in 2025, and we expect it to grow pretty significantly by mid to higher single-digit percentage points in 2027. The one comment that I think Brett made, or if he did not, the closure of the U.K. and our small distribution business results in a direct improvement to our bottom line of $7 million to $8 million. Look at the next page.
It's just a look at the end markets that our customers serve, and we can see that the estimates are a little bit down from the last time that I stated, but they're still positive. This is different from the last five or six years where only really North America construction spend was up. Everything else was zero or negative in those kind of ranges. We still see demand increasing. Actually, Europe is looking like a recovery, particularly in the canned sheet demand and their construction output turning positive. Right now, the interest rate structure is not very favorable for automotive. Should that turn around in the future, that'll be another tailwind for us. I already spent a lot of time talking about tariffs, but the end result of that is that they're delivering as intended. Overall flat-rolled imports decreased over 40%.
Since the introduction of Section 232 tariffs, that's directly resulted in investment in the United States. Steel Dynamics has invested in a new mill in Sinton, West Virginia. Nucor has a new mill in West Virginia. Multiple galvanizing lines have gone in. There's a new aluminum smelter being built in the U.S. for the first time in over 30 years. Steel Dynamics is building a new aluminum mill, as are several others. That gives us confidence that the current landscape is here to change.
The whole goal of the tariffs was to bring work to the United States and also bring investment, which is occurring. It's a very positive backdrop for the United States from an overall production perspective. As I mentioned earlier, and Brett mentioned, Europe is implementing their own safeguards, and Canada and Mexico have also implemented safeguards to try to protect their industries as well, which we serve all of those countries, and so it's all a positive backdrop for us. Dave?
Thanks, Sam. I'll talk a little bit about the Air & Liquid Processing segment. As Brett mentioned, there's three businesses that are in the group, and the next couple slides, I'll go through each one of them. The one thing that they share in common is they all build custom-designed, engineered, and built products. We don't build anything to stock or anything that is just a standard repetitive. Everything we do is specific for certain niche markets. As I go through those, I'll address some of the markets and why we're really optimistic for the future because of some of the markets we're in.
This is the last few years. We launched growth plans in 2022. Air & Liquid had traditionally been a good business that always made money, but the growth had not been there. We looked to change that a few years ago, and we have successfully changed that. You can see the growth in the last few years. Our expectation is that is going to continue in the future years. You can see under number three there, growth expected to average 10% to 12% per year for the next few years.
We are in very good strategic markets, and there are significant barriers to entry, which really protect us and help us to grow this. Starting with Aerofin. Aerofin is a supplier of heat exchangers. The markets that they participate in would be the nuclear market, also industrial facilities, and the HVAC market. The nuclear market is the one that has attracted the most attention in recent years as it has grown significantly, as you can see the bookings going upward. We are firmly entrenched in this market. We are in North American nuclear power plants. We are in more than 90% of them. We have been there a long time. We would be very hard to displace out of that market, which is good for us as it continues to grow, as we continue to see more opportunities.
Most of our competitors cannot compete in this market because they do not have the welding capabilities that we have. It is a nice niche market for us that we see continuing to grow for the foreseeable future. Buffalo Air Handling builds large custom air handling products. Think of something the size of a small apartment almost. Typically supplying to pharmaceutical, healthcare, hospitals, anywhere where there is unique needs. We do not build what we would call comfort air. We build things that are very specific for research centers, operating rooms, areas where there is very clear needs that are beyond just a normal unit. That is really the niche we play in.
Doing a lot of work in pharmaceutical in recent years, Eli Lilly, Merck, Johnson & Johnson, as they have been looking at increasing their footprint in the U.S. That is good for us. A lot of hospital work, as you can imagine, coming off of COVID a few years ago. Hospitals became very interested in how their air was moving through the systems, how to control it better, how to make sure that they knew where it was going. This has been a really good growth market for us as well, and we continue to see that through the pharmaceuticals, the healthcare industries continuing to grow. Then Buffalo Pumps, primarily two products, the Navy side and the commercial side. We have been a supplier of pumps to the U.S. Navy since before World War II. We supply to most of the surface fleet that is out there.
Again, this is a niche market that very few people compete in because much like the nuclear market, it is very hard to get certified to supply to combat ships for the U.S. Navy. It is a nice market without a lot of competitors in it. The Navy market continues to grow. The Navy has a long-term build plan where they are looking at how they increase the size of the fleet, and at the same time, replace some of the older ships that they want to move on from. There is a lot of building that is expected to go on in the next few decades for the U.S. Navy. We have been a critical supplier for them to the point where they have actually provided funding to us to increase our capacity because they would like to buy more.
We're more than happy to do that as we want to sell more. The other side is commercial pumps, which is primarily lube oil pumps that go into gas turbines. The gas turbine business has grown tremendously in recent years due to the data center demand. If you're going to power a data center, the most likely way is you're going to need gas turbines to generate power. That business continues to grow. Really both sides of the Buffalo Pumps business right now are in very nice markets and are showing tremendous growth. If you look at some of our key customers, as I talked about with Buffalo Air, on the right, you're talking Merck, Eli Lilly, some of the various hospitals, Dana-Farber Cancer Institute up in Boston. We've done a lot of work with them.
For Aerofin Energy Infrastructure, Curtiss-Wright, various power plant companies. For pumps, it splits between companies like Solar Turbines and GE and the various defense contractors, the shipyards. All really favorable businesses to be in at the moment, all showing really good long-term growth that I believe will continue to show what we can do. This is where you can see our growth strategy, for all three of these businesses have grown since 2022 when we launched our plans. We see that continuing.
There is a lot of demand out there. The number one thing we're working on is increasing our capacity and our throughput, because the demand is there, and the more we can produce, the more we can sell. We've been focusing on that in recent times, and we've been successful in raising that up. Our bookings are going in a really good direction. Shipments will follow shortly after that to continue to accelerate. At the moment, I'm very excited about the potential for Air & Liquid to continue to grow. I think there's not just one market, but multiple markets that show really good long-term opportunities for us.
All right. Financials. As mentioned before, in 2025, we had adjusted EBITDA margins of 6.7%, just slightly under $30 million. What are our margin expansion drivers? Really just simplifying our portfolio, which we talked about earlier, the closure of the U.K. Steel Distribution business. Really exiting those lower return businesses, improving our asset utilization. With that profitable growth, we're seeing the demand out there, and it's just capturing that, and working on expanding our margins as we move forward. What we expect to get is our target state is above 10%+ , in margin. Double digit. EBITDA margin is our target, and we're definitely moving in that direction. A big question that's come up for us in the past, and it's important to us, is really our net debt and our leverage.
You can kind of see our trend since 2022, our net debt to EBITDA. Last year we ended about 4.2x and we are targeting getting to 3x or below, roughly. What are the key drivers to that? CapEx normalization is one. In the past couple of years, we invested very heavily, specifically in our Forged and Cast Engineered Products business in North America. That has passed us now, and we will most definitely underspend inflation moving forward. We have forecasted EBITDA growth, which is going to reduce our debt and interest. We have an asbestos liability, and the actuary or trends are improving on this liability. Our projection is we are coming off the peak of that bell curve, and we will start seeing those cash outlays going down in the future. Our U.S.
pension is now fully funded, which is good, and we have moved now to a more conservative investment track to make sure we maintain that. That happened just recently here in the first quarter of 2026. As we continue to generate positive free cash flow and that continues to improve, we will use that to continue to pay down our debt to put us in a much stronger position.
So again, why invest in Ampco-Pittsburgh? The fundamentals on the Forged and Cast Engineered Products side. The Section 232 tariffs, what is happening in Europe, changes they are making are all positive. The Air & Liquid Systems Group, whatever we make, we can sell, and how do we sell more and we are in unique and specialized segments that are very tough for competitors to get into. We are seeing balance sheet and cash flow improvements are going to enhance our financial flexibility. Again, we are four distinct, unique businesses, and so there is valuation and I believe strategic optionality. That is it for the presentation. Be happy to take questions.
Thank you all. If you have a question, please use the Q&A icon, and I will present it to management. I would actually like to kick it off with the A sizable jump that you've had in orders in recent periods. Backlog of roughly $385 million. Can you discuss the expected timeline to converting backlog into revenue? Are there any supply chain or labor constraints that might limit a ramp-up?
From the Air & Liquid side, not a supply chain constraint. Our orders, it varies depending on the market. You can typically think in the time period of 6- 12 months from order to when it would normally be needed. It's a little longer for Navy ships, as you might imagine. Those take a while to build. Some of the heat exchangers on the commercial side, we can do much faster in six or seven weeks.
Got it. We're going to move straight to the audience because there's a number of questions to get to. First question is, what percent of your revenue is sourced from Canada, and what impact do you foresee trade frictions having on your business there?
For my business, there's some business in Canada on the nuclear side. I don't see that changing because there's nobody up there presently in Canada that can supply what we supply.
Fair enough.
For me, I don't have it offhand, but it's probably less than 5%. The tariffs really don't have an impact as there's no roll supplier in Canada. They have to order, bring them from Europe, and in the case of forged rolls, just shipping is prohibitive. In case of cast rolls, they have to buy them from Europe, what they can't get from the U.S. anyway. There's really no effect.
Got it. Next question is, are your heat exchangers used in mini splits? Is the growth of the mini split market a big revenue opportunity for you?
When you're talking mini splits, I guess let me clarify whether you're talking about SMRs, which are small modular reactors for heat exchangers. That is certainly an avenue for us that we see growing. We're engaged with people from startups to Westinghouse. Everybody's looking at small modular units.
If you are talking split fit coils, yeah, that is an aftermarket product we sell that actually can be assembled in the facility once it is sold to them, and that has been a growing market for us.
Okay. I guess this is going back to the old tariff question. What do you think of the impact of the new European industry protections implemented in July? Maybe, I do not know, a synopsis of what you think the net result is going to be.
Well, that is yet to be seen. I am hopeful it is going to do what it is intended, which is raise utilization rates in Europe to 80%, make our customers more profitable, and then we will sell more rolls to them. That is certainly intent. Has a lot more teeth to it than their prior actions. So, hopeful, but yet to be seen.
Sam, just to follow up on that, what kind of timeline do you think it would take for that 80% threshold?
It shouldn't be more than six months, but they won't be able to ramp from 65% to 80%, so let's just say it's a year. Because it'll take time. That's a 20% increase or more. I think it'll take a little bit of time for them to get to that.
Curious. Okay, thanks for that color. Question from the audience. Are there opportunities to expand your Forged Engineered Products beyond the 6% of revenue in the Forged and Cast Engineered Products segment?
The answer is yes, but at some point, it fights against rolls, and when we make FEP products, it only goes through our Berwick Town facility, which is melt, forge, and rough machine. Rolls go through there, plus our finishing facility. So we get a lot more machine utilization and absorption out of a roll than we do out of FEP. Next year it will increase meaningfully. And it's been higher this year as well.
I believe you touched on this in your prepared comments, but the question is, can you provide more detail about how your air handling products are used in the pharmaceutical industry and in healthcare?
Yeah. They're used in the manufacturing process in some cases. If you're thinking of things like clean rooms, areas where you can't have contaminants, those are the kind of units we build. If you're doing research, and you're doing research for years, you can't have your system fail. So those are the type of units we build that will help them do that. And then for hospitals, I always say we don't really do comfort air, we do where there's unique things to be solved. For example, an operating room. You want to maintain positive pressure always, so when you open a door, the airflow is pushing out, not bringing contaminants in. We build units to do things like that.
Got it. I'll sneak one last question in. You had that target of 10%+ of adjusted EBITDA margin. Last quarter, you came fairly close. I'm curious to know what kind of timeline do you think that's reasonable to hit that number, and how far ahead of it could you exceed it?
Oh, we are close for sure. I don't think it'll take much for us to get over that-
Right
...hurdle, and certainly there's opportunities to go higher than that.
Okay. On that up note, any closing remarks?
Not for me. I guess I do have a closing remark that, again, I think we're an undervalued option right now in the marketplace, and we have a lot of positive momentum going in our direction. We've indicated earlier in our last earnings call that third quarter's always a little bit weaker for us just because we have shutdowns in Europe. We do planned maintenance work and also in North America. You'll see the impact of that in third quarter. Everything we see now, fourth quarter moving forward looks extremely strong and we're very bullish.
Great. Well, Brett, Sam, David, thank you for your time. We appreciate you. And have a great day, everybody.
All right. Thank you.
Thanks, everyone.