Q2 2022 Albany International Corp Earnings Call

July 26, 2022

Ladies and gentlemen, thank you for standing by welcome to the Albany International Q2, 2022 earnings conference call.

At this time all telephone lines are in a listen only mode. Later, there will be an opportunity for questions and answers with instructions given at that time.

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As a reminder, your conference call today is being recorded.

I'll now turn the conference call over to your host director of Investor Relations John Hobbs. Please go ahead.

Thank you Alan and good morning, everyone welcome to Albany International second quarter 2022 conference call.

As a reminder for those listening on the call. Please refer to our press release issued last night detailing our quarterly financial results.

Contained in the text of the release, it's a notice regarding our forward looking statements and the use of certain non-GAAP financial measures and their associated reconciliation to GAAP.

For the purposes of this conference call those same statements apply to our verbal remarks. This morning.

Today, we will make statements that are forward looking that contain a number of risks and uncertainties, among which are the potential effects of the COVID-19 pandemic and the potential effects of the Russian invasion of Ukraine on our operations the markets, we serve and our financial results.

For a full discussion, including a reconciliation of non-GAAP measures. We may use on this call to their most comparable GAAP measures. Please refer to our earnings release of July 25, 2022, as well as our SEC filings, including our 10-K.

Now I'll turn the call over to Bill Higgins, our President and Chief Executive Officer, who will provide opening remarks bill.

Thank you John Good morning, and welcome everyone. Thank you for joining our second quarter earnings call today I'll comment on our business conditions, and then Steven will cover our financial results in more detail. We're reporting another strong quarter with revenue of $261 million up on both a year over year and a sequential basis the growth was driven by re.

Bounding leap production and revenues from the CH 50, <unk> helicopter content, we recently won with Sikorsky.

We're excited about this growth program and our teams are doing a great job of expanding our manufacturing capacity in our Salt Lake City facility.

GAAP EPS of $1 25 per share includes 20 of foreign exchange revaluation gains.

Adjusted EPS of $1 six per share was higher than a dollar one adjusted EPS recorded reported in Q2 last year.

Our machine clothing segment had another great quarter overall customer demand remained steady segment sales were down one 8% on a constant currency basis from last year's exceptionally strong levels in part a result of our exit from the Russian market.

Underlying business conditions at our customers remains strong RMC team has done an outstanding job maintaining margins. Despite the inflationary pressures they've experienced.

Dan delivering gross margins over 50% with adjusted EBITDA margins of more than 38%.

Looking forward in the EMC business demand remains resilient with order levels up year over year going into Q3, and general paper makers continue to enjoy attractive demand and they've been pushing price increases for the products resulted in healthy cash flow from their operations machine.

Machine clothing is essential to our customers ability to keep their machines running and our teams have done a great job meeting that demand despite supply chain challenges that seen ever present.

This ability to navigate dynamic logistics markets has become even more important to our success in this environment, where supply chains are constrained and customers value the ability to deliver on time.

Our engineered composites segment segment delivered a good quarter as well the segment reported significant year over year revenue growth of $35 million driven by two primary factors one the revenues from the CH 53, K content, I mentioned earlier and to a year over year increase in leap production <unk>.

Adjusted EBITDA margins rebounded to just under 20% as the revenue mix improved.

During the quarter Boeing notified us they would no longer cover ongoing production of 787 frames in order to keep our production line warm.

Therefore, we have temporarily idled, our Boeing 787 frame manufacturing.

Redeploy those employees to other growing programs and.

And with excellent performance continuing in both segments were raising company level guidance for 2022, which Stephen will cover in a minute.

Let me make a few comments on the environment and how we've managed through it supply chain constraints logistics material availability inflation continued to challenge our teams tight labor markets and being able to recruit talent is another challenge in this environment.

Our teams have done remarkably well managing through it by working together for example to overcome supply chain shortages and delays we've taken a cross functional approach that connects supply chain with engineering with operations and with customers to optimize material and manufacturing uptime and performance.

We've been able to deliver on time and maximize profitability.

We continue to experience inflationary pressures and worked hard to offset higher cost with ongoing productivity improvements across our operations and with selective price increases.

In engineered composites the structure of many of our contracts has helped soften the impact of inflation on our results in.

In machine clothing, our global operating footprint places us closer to our customers and advantage in this environment.

And both of our businesses, we remain nimble and continue to support our customers.

We're encouraged by early signs that transportation availability and pricing appear to be stabilizing.

In engineered composites, we just returned from a very successful Farnborough Air show, where the level of engagement with current and potential customers suppliers and aerospace industry peers is exceptional.

During the show I heard nothing but positive comments from our customers and because of that all of our discussions were about future business opportunities, which translates into growth opportunities for us.

The Air show confirm that we are increasingly recognizing the industry as a dependable and preferred partner of choice.

I'm most proud of how both of our teams in both our teams in both segments are performing our customers are pleased with our performance and we continued to pursue new growth opportunities because of it.

And our balance sheet is rock solid which enables us to continue to invest in our future. So with that I'll hand, it over to Steven David. Thank you Bill good morning to everyone.

I will talk first about the results for the quarter and then about our updated outlook for the balance of the year.

For the second quarter total company net sales were $261 4 million.

An increase of 11, 4% compared to the $234 5 million deliberate in the same quarter last year.

Adjusting for currency translation effects, principally to decline in the euro relative to the U S dollars net.

Net sales increased by 14, 6% year over year in the quarter.

In machine clothing also adjusting for currency translation effects net sales were down one 8% year over year compared to an exceptionally strong second quarter of last year, driven by declines in engineered fabrics packaging and tissue grades.

These declines were partially driven by our previously announced exit from the Russian market.

Engineered composites net sales again after adjusting for currency translation effects grew by nearly 50% with growth on CH 50, <unk> and lead production, partially offset by a decline on the F 35, and 787 platforms.

During the quarter the leap program Jenny generated revenue just over $40 million compared to a little under $26 million in the same quarter last year.

Second quarter gross profit for the company was $106 million a reduction of one 1% from the comparable period last year.

Similar to the first quarter as a result of the mix shift due to eight he sees topline growth outpacing that of the <unk> segment.

The overall gross margin declined by 490 basis points from 43, 4% to 38, 5% of net sales.

Within the <unk> segment gross margin declined by 90 basis points.

From 52, 9% to 52.0% of net sales due to higher input costs and mix effects, partially offset by a onetime accrual release.

Within <unk> the gross margin declined from 23.0% to 19, 8% of net sales caused primarily by a lower net favorable change to long term contract profitability, which was just over $1 million this year compared to over $4 million in the same quarter last year.

And by mix effects.

Second quarter, selling technical general and bring search expenses decreased from $51 8 million in the prior quarter to $49 9 million in the current quarter and decreased as a percentage of net sales from 22, 1% to 19, 1% primarily due to difference.

In foreign currency revaluation effects.

Total operating income for the company was $57 million.

Up from 50.0 or $1 million in the prior year quarter.

Machine clothing operating income decreased by about $1 million caused by lower gross profit, partially offset by lower STG NR.

<unk> operating income rose by about $2 4 million driven by higher gross profit, partially offset by higher <unk> expense.

Other income and expense in the quarter netted to income of about $7 million compared to expense of about $800000 in the same period last year.

The improvement was primarily driven by a more beneficial foreign currency revaluation effect in the quarter.

The income tax rate for the quarter was 26, 9% compared to 30.0% in the prior year quarter.

The lower rate this quarter was primarily due to favorable discrete adjustments this quarter.

Net income attributable to the company.

For the quarter was 39, 2% or $39 2 million.

An increase from $31 4 million last year.

Driven by more beneficial other income and expense, partially offset by higher tax expense.

GAAP earnings per share was $1 and 25 this quarter compared to 97 cents in the same period last year.

After adjusting for the impact of foreign currency revaluation gains and losses.

Restructuring expenses and expenses associated with the <unk> acquisition and integration.

Adjusted earnings per share was $1 <unk> this quarter compared to $1 <unk> last year.

Adjusted EBITDA decreased four 9% to $66 million in the most recent quarter compared to the same period last year.

Machine clothing, adjusted EBITDA was $57 9 million.

Our 38, 2% of net sales this year.

Down from $63 million or 39, 4% of net sales in the prior year quarter.

<unk> adjusted EBITDA was $21 3 million or 19, 4% of net sales up from last year's $19 3 million or 25, 9% of net sales.

During the quarter the company generated free cash flow.

Behind this net cash used in operating activities less capital expenditures of about $22 8 million.

During the second quarter, we returned over $47 million of cash to our investors comprised of over $6 million in regular dividends and over $41 million in share repurchases.

We repurchased almost 510000 shares during the second quarter at an average price of $80 and 93.

At the end of the quarter, our net leverage ratio to <unk>.

<unk> is total debt less cash and cash equivalents.

Divided by trailing 12 months adjusted EBITDA was about 0.66.

I would now like to provide an update on our financial guidance for the balance of the year.

Once again machine clothing had a good quarter with a difficult comparison to a very strong second quarter in 2021.

The decline in the top line was largely due to currency effects.

Timing driven decline in North American revenues, and our exit from the Russian market.

We are certainly seeing more impact on revenue from currency effects than we had anticipated as even three months ago, we had not expected the euro to be quite this close to parity with the U S dollar.

However demand for our products remains strong globally with higher orders in the second quarter compared to the same quarter last year in all regions.

Therefore, we are reaffirming our previously issued revenue guidance for the segment of a range of $590 million to $610 million.

From a profitability perspective, we are seeing some impact from rising input costs our.

Our gross margin was down 90 basis points year over year in the quarter and within the quarter. It trended a little lower in the third month compared to the first two months.

For the full year the expected impact from inflation continues to rise every quarter.

And is now about $8 million higher than when we provided our initial guidance.

However, the <unk> team is continuing to drive efficiencies offsetting the impact of some of that inflation.

As I discussed a moment ago. We are also still seeing good demand for our products, which helps maintain strong margins. Therefore.

Therefore, while we still expect to see year over year impact from inflation and other factors in our results. We are modestly raising the lower end of our full year adjusted EBITDA guidance for the segment.

Resulting in a revised range of 210 $225 million.

Turning to engineered composites the results for this quarter and for the balance of the year will be materially higher than what we had communicated to you last quarter.

The primary positive driver of that change is the CH CH 53, K after transition program.

When we last discussed that new win we indicated that we did not anticipate recognizing material revenue on that program during 2022.

As you are aware on the vast majority of the Auc's programs. We are required under the relevant accounting standards to recognize revenue as we incur cost on the program.

However, we haven't.

The date of the contract structure on the App to transition program that would have led to us deferring revenue recognition on the nonrecurring cost incurred in 2022.

Expected that time at that time to represent about $30 million of revenue.

And then amortizing it over the life of the production program.

Since then two things have changed.

First in late May we completed the negotiation of the contract with our customer and its final form resulted in somewhat different accounting treatment than we had originally anticipated.

And second our customer has asked us to begin production and assembly work earlier than we had anticipated.

As a result of those changes we will not be recognizing significant revenue from the CH 53, K after transition program this year.

During the recently completed quarter, we recognized close to $20 million in revenue on the program largely related to tooling expenditures.

And we expect to recognize close to $50 million in revenue for the full year.

Bill has already discussed the idling of our 77 frame production.

Our other AUC programs are running as expected, including the ASC Leap program, which we expect to deliver over $150 million in revenue for the full year and the F 35 program, which we still expect to be down about $15 million for the full year compared to 2021.

Overall for the segment, we are raising both the lower and upper end of our guidance range for the full year by $50 million, resulting in a revised range of $380 million to $400 million.

We are also updating our guidance for AUC adjusted EBITDA to a range of $75 million to $80 million up from the prior range of $65 million to $75 million.

At the company level, we are updating our previously issued full year guidance as follows.

Revenue of between 970 and 1.01 billion.

Up from our prior range of $920 to $960 million.

Effective income tax rate of 28% to 30% updated from our prior guidance of 29% to 31%.

Depreciation and amortization of $71 million to $72 million down from $75 million.

Capital expenditures in the range of 75 to 85 million unchanged.

GAAP earnings per share of between $3 45, and $3 75.

Updated from prior guidance of between $2 76, and $3 26.

Adjusted earnings per share of between $3 30, and $3 60.

Updated from our prior guidance range of between $2 80, and $3 30, and adjusted EBITDA of between 230 and $250 million updated from prior guidance of between 215 and $245 million.

Returning to the present, we want to thank all of our employees for the hard work that led to the great performance in the recent quarter.

I am pleased that we were able to nudge up our guidance at this point in the year, we feel good about the outlook for both segments not only in the near term, but also into the future.

And with that I would like to open the call for questions Alan.

Thank you ladies and gentlemen, if you do have questions. Please press one then zero on your Touchtone phone at this time.

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Again for questions Press, one then zero at this time.

We'll go first to the line of Michael Cerasoli with Truest Securities Go ahead. Please.

One moment Chevrolet, we're having some technical difficulties.

Sure go ahead please.

Hey, good morning, guys. Thanks for taking the questions nice nice quarter here.

I guess bill or Steve anything.

Looking at the remainder of the year, and obviously theres a lot of crosscurrents a lot of unknown the second half.

I guess revenues flat to down the EPS at the low end really implies a pretty big fall off versus what you did in the first half what are the puts and takes that kind of drive the low end of the range. There. What are you seeing in terms of risk factors that could really drive down to that range.

Yes, I think as a start the machine clothing business, we kind of we now move into the summer season, and then into the fall typically is a little bit lower.

Engineered composites.

We're doing a really nice job there, but we had expected the Boeing 787 work to at least contribute a little bit and now we've kind of as I said, we've idled that production line for now so.

I don't know, Steve if you want to add anything to that yes.

Yes.

There are the pressures we have talked about in machine clothing at which we expect to be greater in the back half of the year. The first half of the year at supply chain costs, our input costs FX effect as you know FX continued to swing against us.

This time through last year, we had averaged about a $1 19.

Euro to the U S. Dollar this year, we've averaged about $1 nine in the first half.

Right now we're close to parity with one to one and so you have to just currency, we've seen half of the effect in the first half that we expect to see in the second half assuming if it sticks around lists that parity level at that right now.

So those effects will certainly hit us more in the second half they did in the first half of the year.

That certainly embedded within our guidance.

Got it got it that's helpful and then just looking out.

To.

Engineered composites and 23, you said you get back to that $450 million does anything change year obviously.

We've got supply chain complications you know the 787 now iron ore, obviously small, but I guess even thinking.

53, K become a bigger contributor in 'twenty, three or just any moving parts to that $4 50, a I'm, assuming it's still intact.

Yeah.

Uh huh.

There are moving parts of the parts moving in both directions here right. We have the CH 53, K, which we're really excited about and that's growing faster than we had anticipated we had not anticipated the 787 line coming to a halt here.

And we don't know when that's going to pick back up yet. So that's just still a question mark in our mind, so we'd like to defer to later in the year to come back with you with more information on that yes, certainly.

The better performance on CH 53, K this year, where we originally had not anticipated recognizing material revenue I don't want to viewing that as a pull forward from 2023. If you recall the bulk of that revenue was going to be deferred over a 10 year period and so it has a fairly <unk>.

Minimal impact to 2023 on the downside from recognizing that revenue. This year as Bill said 77 is a bigger change quite frankly look we next to our full rollout of 2023 and in the back half of the year. So as you prepare for forgetting our annual plan approved by the board the December timeframe. So as we.

Do that we'll update you if we see any material change.

Got it last question for me on the 787 idling the frames. If we watch you know maybe it will get news next week from Boeing but if we hear about a restart there can you give us any color in terms of how many frames or any inventory or what the burn down period might be like assuming they they start back up here shortly at modest volumes.

I wish I could Michael I'm not sure I can you know we supply to two other companies that assemble the frames into the sections.

Don't have real good visibility of how the inventory in the system or at Boeing what it looks like today.

Got it understood.

Thank you.

Okay.

We'll go next to the line of Pizza Kubicki with Alembic Global go ahead.

Hey, good morning, guys nice quarter.

Thanks, Steve.

Maybe just to start a follow up on CH 53, Steven your comments about $50 million. This year on CH 53, I wasn't sure if that was all done.

All in program or just the App portion. So maybe you can clarify that and just directionally into 2023 should we think about that program continuing to grow also.

Yeah. So the $50 million I gave was just for the <unk> transition component of the program at the entire CH 50, <unk> program for us would be much much larger and as you think about into.

2023 at just the App transition program, we've actually expect to bit of a dip from 2022 to 2023 as we move into production right now, we're incurring tooling expenses and nonrecurring expenses.

Larger within the given year, then the annual run rate.

Production expenses are likely to be so as we go into production, you'll actually see a little bit of a different RASM before it starts to grow again.

The outlook has say for 2023 years is not materially different than what we had previously embedded within the 450 million forecast we shared with you.

A couple of quarters ago. So I don't think Youll see what we are recognizing this year interest CH 50, <unk> is changing that.

Right, Okay, Okay, and then just.

Just to follow up on AUC margins.

I mean, it was a strong number this quarter. Despite 787 being down you guys were pretty cautious.

Coming into the quarter.

Im sure <unk>. The CH 53 is a pretty healthy margin program for you and that.

Directionally into 2023, you've got some tailwind there.

CH 50, <unk> is a fixed price program its margins would be more in line certainly.

We've talked previously about a cost plus program like leap being lower than average margin that would not be true CH 53, K it would be more like one of our typical fixed price programs.

Right. Okay. That's correct, okay I'll get back in queue. Thanks, guys.

Thanks Nathan.

Okay.

We will go next to the line of Gautam Khanna with Cowen go ahead. Please.

Yes, a couple of questions first.

In machine clothing, I, just I'm curious.

If you still view that there is excess inventory in the channel and.

If on currency.

Currency actually any sort of headwind to us.

Demand.

Because of pricing that we would have.

If you could address those two and then we can switch to AC.

No to answer the second part of your question first.

No I don't think we're seeing any.

Material headwinds to demand.

From currency.

Uh huh.

Although obviously as we've discussed before we have over $100 million of sales in euros, and therefore as the Euro falls against the dollar does sales in U S dollars, Paul, but it's not driving underlying demand for our product. It's just the translation effect.

As we as we recognize that being in U S dollars.

Right.

We were concerned that we're pricing a lot of our product in U S dollars in regions, where the dollar has now fallen against the local currency and our products are more expensive that's not really a material driver of demand for our products in machine clothing at all.

And then on the inventory level previously you thought maybe $10 million of access.

Youre correct.

We're still watching the inventory it may not be as severe as we had expected.

There is some inventory build in the system I think it's probably a natural reaction to all the supply chain logistics bottlenecks.

Our our customers don't want to get caught without without a belt.

We've kind of heard that some of the other competitors in the industry that ship across Atlanta across specific.

Struggled with delivery. So I think there's a natural inclination right now to have a little extra inventory, but I don't see it as possibly is a bigger problem as we thought yes, it's certainly no larger than the number we communicated to you before gautam update in the $10 million range from our project.

Our assessment right now is it's no larger than that.

Okay No that's helpful.

And then switching to AC.

Couple of questions first the <unk>.

Can you quantify the positive EAC in the quarter.

So it was just one for me.

Compared to the roughly a $4 million positive range in the same quarter in 2021.

Okay.

Great.

And then.

I wanted to be clear on the CH 53, K can you give us a ballpark of the aggregate sales level for the program this year apps plus.

The original win and then.

And just so I understand what you had said earlier about the 20 ish million of nonrecurring.

Nonrecurring tooling.

What was that was that expected to be like $2 million, a year or something because I think you said over 10 years I just wanted to make sure I understand.

What change yes.

Well the entire program grow next year and if so.

Just thinking about that $20 million.

Yes, Thank you yes.

Okay, sorry, sorry for speaking of it certainly is as we look at coming into the year, we would expect it to do nonrecurring work, both tooling and nonrecurring engineering, which would mean the equivalent of about $30 million in revenue, but we were not expecting to recognize any revenue we're going to put that on the balance sheet.

Inventory. So it is somewhat lower cost because we wouldn't be putting margin onto it was hoping just at cost we will be putting into inventory and then we would recognize that as revenue over the subsequent.

Roughly 10 year production period, so we had expected to recognize about $10 million a year.

$3 million a year.

Revenue over that 10 year period, instead, all of that $30 million is being recognized this year as we incur the cost. We are also doing some additional work we had not anticipated doing this year, which generating about another $20 million of revenue, which means the in aggregate. The app transition program. This year will generate.

About $50 million of RASM, you give or take at the larger CH 53 K program. If we include both App transition and our you know what.

For now I'll call legacy work its that in the future we're going to just talk about the program in aggregates, but the legacy work, which is really the sponsors and the tail structure.

So so that legacy work is roughly the same size this year as the as the App transition work. So in aggregate. This year CH 50, <unk> will recognize will result in something like $100 million of revenue.

And next year in aggregate will it grow or decline.

Because of that $3 million of nonrecurring yes.

Yeah, well look we haven't finalized our plans for next year.

It can take as you indicate and I certainly don't expect.

So I don't expect a material decline, whether we'll see some growth on that or to be.

Kind of flattish I don't I don't have a parity there where there was a dip right. We have a dip for the tool, but we're seeing some growth in the legacy programs.

We don't we're not issuing guidance for next year, yet, obviously golf them, but it certainly does not have material get to next year.

Okay.

And I hate to give us the last one on leap because no one asked.

Where are we with respect to.

You said $40 million plus of revenue in the quarter, but I'm. Just curious are you generally tracking with the.

With the shipment rates at GE, just disclosed today or any.

Where are you ahead, where you're behind the curve with respect to inventory and the like thanks, Yes, Let me just remind everyone that when we set our plans with lead production, we set them for the year, a pretty stable rate. So when we look at the growth.

Wouldn't see us growing every month every week whatever with the airline production with the aircraft production rate.

So we're on track for what we set our plans for this year and then we'll come back in a reset at a higher level for next year, but as I mentioned three months ago, We don't expect to keep discussing inventory in the leap program, because our inventories effectively at the level we expected.

But we're targeting and absent is as bill talks about somewhat level loading during the year and there is no excess inventory right now on our books for leap at all.

Thank you.

One moment please.

We'll go next to the line of Peter Arment with Baird go ahead. Please.

Yes, good morning, Bill Stephen a nice quarter.

Bill I wanted to know if I could circle back to you on the on your supply chain comments. It feels like we are in last few months, we've been hearing about it actually feels like things have gotten worse not better, but you guys seem to be managed through it quite well maybe if you could just describe maybe what youre seeing in terms of.

At least.

The trajectory of any improvement or if things have not gotten any better in between <unk> and AUC, maybe just a little color on how.

How things are shaking out on both sides.

Sure Peter Yes.

Supply chain has been a challenge.

For a while it seems like we do our business reviews. Its a different story every quarter.

It just continues so it has gotten a little better on the logistics side and that was my comment.

The shipping of material the shipping of whether it be raw materials or finished product seems like it's a little bit better.

Some containers are available.

But we're still watching the supply of materials. So you think about raw materials, whether its yarns are resins or chemicals.

We're still watching those secondary.

Facts that we're watching with what's going on with the Russian gas supply into Europe , and the availability of that that would put on on.

On resins or other chemicals used in the process. So I think we're fortunate in the sense that we use a lot of basic materials, we build our products we're not.

Not buying.

Sub components and embedded chips and things that other companies are struggling with so we have a little bit more control over our supply chain, but it's been an ongoing challenge, but I do I do sense, maybe its a little bit better.

Looking for the optimism in it but I think it's a little better.

And just the labor piece as well I know you mentioned that I mean, that's everyone's dealing with the labor constraints.

What are you seeing there on your ability to kind of ramp back up in AUC.

Yes, we've been ramping up so we've been actually adding people in multiple locations.

It's been a challenge the labor markets are still tight.

Watching compensation side as well so far we've been able to manage it predictably and kind of the way we thought it would play out but it challenges our recruiting infrastructure in.

Our training pipeline of bringing people in and Onboarding them is it's not easy we're working through it but it is still a very tight labor market.

I appreciate the color. Thank you.

Thanks.

We have a follow up question from Michael Cerasoli with true Securities go ahead.

Hey, guys. Thanks for taking the follow up maybe just to piggyback on what Gautam was asking about the leap.

It sounded like you.

<unk> had set your rates, we keep hearing I guess engine lack of supply being one of the bigger Chokepoints I mean are.

Are you guys effectively keeping in sync with your customer demands do you expect.

Any kind of ramp up or changes.

Pending.

Depreciation of the Commack change anything on the leap program.

Yes, we cant Michael Yes, part of your question, Yes, we are able to keep up with demand we don't have a capacity issue.

To Peter's question about labor we've added some.

Some folks to our workforce and we'll continue doing that but we have the capacity we have the machine capacity, we have the physical capacity to produce at the current needs and even if it grows we have the capacity to do that so we're not part of the supply chain bottleneck that you may be reading about or hearing about in the production of engines and aircraft. So we're feeling pretty good about being able to keep up.

Demand in and we won't get a new schedule until later in the year for next year. So I can't really comment on what <unk> might look like next year.

Got it perfect. Thanks, guys.

We also have a follow up from <unk> kubicki with Alembic Global one moment. Please.

Your line is open there's just kubicki.

Yeah. Thanks couple of quick follow ups guys I'm, sorry, if I missed this on machine clothing, but they're starting to talk about curtailing natural gas use in Europe in order to kind of prep for the winter and people think that that will kind of lead to a slowdown there I am wondering if youre seeing how things are going with machine clothing in Europe or are you seeing any.

Slow down there yet are you are you planning for kind of flattish revenue there in the back half of the year just looking for color for that region. Thanks.

Yes, I would say in general the markets have remained healthy.

There are some pockets we have we did see earlier in the year or there is some concern about the high gas prices and the impact that has on specific types of production. If you think about tissue production is energy intensive.

Nat.

Natural gas and other fuel prices went up that would be.

Put a lot of pressure on the tissue manufacturers, but overall the market has held up pretty well in publications kind of stabilized after a decline in the last few years.

So overall, we're feeling like it's pretty good when we think about the natural gas situation in Europe .

A little bit more on the supply of materials and chemicals.

And things.

Okay. Okay. So I guess that would be a watch item.

Last one for me.

On engineered composites it sounds like Dod is getting ready to award the new helicopter contract Flora This fall and I am not sure. If I've asked you. This but do you guys have content on flora either on one of the teams are most of the teams and could that be significant for you.

We'd love to be on it.

I can't really comment on who we're working with what we're doing at this point.

As we've said we have a really good relationship with Sikorsky. So that's one we're working really closely.

Okay. Okay.

Sounds great. Thanks, guys.

Thank you.

If there are any additional questions. Please take this opportunity now to press one then zero on your Touchtone phone.

Speakers, we have no one else queuing up.

Alright.

Thank you Alan Alright, Thank you everyone for joining us on the call today as always we appreciate your continued interest in Albany International. Thank you and have a good day.

Ladies and gentlemen, this conference will be made available for replay beginning today.

July 26, 2022 at 11 a M.

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Ladies and gentlemen, thank you for standing by and welcome to the Albany International Q2, 2022 earnings Conference call.

At this time all telephone lines are in a listen only mode. Later, there will be an opportunity for questions and answers with instructions given at that time.

If you should require assistance during the conference call. Please press Star then zero.

<unk> specialist will assist you offline.

As a reminder, your conference call today is being recorded.

I'll now turn the conference call over to your host director of Investor Relations John Hobbs. Please go ahead.

Thank you Alan and good morning, everyone welcome to Albany International second quarter 2022 conference call.

As a reminder for those listening on the call. Please refer to our press release issued last night detailing our quarterly financial results.

Contained in the text of the release.

Notice regarding our forward looking statements and the use of certain non-GAAP financial measures and their associated reconciliation to GAAP.

For the purposes of this conference call those same statements apply to our verbal remarks. This morning.

Today, we will make statements that are forward looking the contained a number of risks and uncertainties, among which are the potential effects of the COVID-19 pandemic and the potential effects of the Russian invasion of Ukraine on our operations the markets, we serve and our financial results.

Now I'll turn the call over to Bill Higgins, our President and Chief Executive Officer, who will provide opening remarks bill.

Thank you John Good morning, and welcome everyone. Thank you for joining our second quarter earnings call.

I'll comment on our business conditions, and then Steven will cover our financial results in more detail. We're reporting another strong quarter with revenue of $261 million up on both a year over year and a sequential basis. The growth was driven by rebounding lead production and revenues from the CH 50, <unk> helicopter content. We recently won.

Sikorsky where.

We're excited about this growth program and our teams are doing a great job of expanding our manufacturing capacity in our Salt Lake City facility.

GAAP EPS of $1 25 per share includes <unk> <unk> of foreign exchange revaluation gains.

Adjusted EPS of $1 six per share was higher than $1. One adjusted EPS recorded reported in Q2 last year.

Underlying business conditions at our customers remained strong RMC team has done an outstanding job maintaining margins. Despite the inflationary pressures they've experienced again delivering gross margins over 50% with adjusted EBITDA margins of more than 38%.

Machine clothing is essential to our customers ability to keep their machines running and our teams have done a great job meeting that demand despite supply chain challenges that same ever present.

EBITDA margins rebounded to just under 20% as the revenue mix improved.

During the quarter Boeing notified us they would no longer cover ongoing production of 787 frames in order to keep our production line warm.

Therefore, we have temporarily idled, our Boeing 787 frame manufacturing.

Redeploy those employees to other growing programs.

With excellent performance continuing in both segments were raising company level guidance for 2022, which Stephen will cover in a minute.

Let me make a few comments on the environment and how we've managed through it.

Supply chain constraints logistics material availability inflation continued to challenge our teams tight labor markets and being able to recruit talent is another challenge in this environment.

We've been able to deliver on time and maximize profitability.

We continue to experience inflationary pressures and worked hard to offset higher cost with ongoing productivity improvements across our operations and with selective price increases.

In engineered composites the structure of many of our contracts has helped soften the impact of inflation on our results and.

In machine clothing, our global operating footprint places us closer to our customers and advantage in this environment.

In both our businesses, we remain nimble and continue to support our customers.