Q3 2022 Albany International Corp Earnings Call
Contained in the text of our press release, there's a notice regarding our forward looking statements and the use of certain non-GAAP financial measures and their associated reconciliation to GAAP for.
For the purposes of this conference call. The same statements apply to our verbal remarks. This morning.
Additional details can be found in 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 and thank you for joining our third quarter earnings call.
Today I'll comment on our third quarter business performance with some perspective on our markets and our strategy and then Steven will cover our financial results in more detail.
We're pleased to report another strong quarter, both of our business segments executed well on the topline we grew total company third quarter sales by 12%.
Nearly 17% on a constant currency basis.
Engineered composites grew third quarter sales nearly 37% compared to Q3 last year.
Driven by the ramp in leap engine and the CH 50, <unk> helicopter programs.
Machine clothing reported revenues that were relatively flat year over year on an as reported basis, while underlying constant currency revenue grew at 4%.
On the bottom line, both segments achieved strong operating income and profitability working hard to overcome inflation and supply chain challenges recessionary forces in Europe, and a COVID-19 slowdown in China.
GAAP EPS of <unk> 34 cents per share includes a significant pension settlement charge at Steven will cover in more detail.
Adjusted EPS of $1 15 per share was significantly higher than the 83.
For sure it adjusted EPS reported in Q3 of last year.
Our machine clothing segment delivered another solid quarter on a currency neutral basis machine clothing grew third quarter sales just under 4% compared to Q3 of 2021.
Through a combination of stable top line disciplined cost control supply chain management and great factory execution, our machine clothing segment did a great job delivering gross margins of nearly 52% and adjusted EBITDA margins of 38%.
We continue to meet our customer delivery commitments by managing supply chain shortages and long lead times and by balancing factory production to optimize output.
We're starting to see some improvement in transportation and freight.
A hopeful sign that supply chain disruptions are finally, improving.
On the customer front global demand for paper machine clothing held up well in the third quarter on a constant currency basis sales were higher year over year in the Americas Asia and Europe .
Our order bookings are healthy despite continued locked down for COVID-19 in China, the effects of the war in Ukraine, and higher energy costs.
Overall machine clothing demand remains steady as we head into Q4 in aggregate. It was a solid quarter, our backlog is filling and setting us up for a good finish to the year.
Our engineered composites segment delivered another excellent quarter as well demand growth and program wins are driven our top line higher this year principal contributors to our 37% year over year revenue growth our growth in leap engine revenues from our partnership with Safran and growth in revenues on our Sikorsky CH 53 helicopter program.
On the bottom line AUC delivered third quarter, adjusted EBITDA margins of 20%.
As with M. C machine clothing, our supply chain and factory teams are doing a great job keeping materials and hardware flowing to feed operations and meet customer production needs.
We continue to do a great job for customers, we have a number of new program pursuits underway and growing interest from new customers that recognize our composites expertise and our reliable delivery were.
We're taking advantage of our strong balance sheet to invest in new product development and organic growth.
Looking to the fourth quarter, our defense program portfolio and our lead program are in good trajectories setting us up for another solid quarter.
So let me take a few minutes here to make some comments on our strategies in each business segment.
We've demonstrated that our machine clothing business is resilient.
Over the past three years, we've grown trailing 12 month adjusted EBITDA by $30 million. Despite the pandemic the strong dollar and input cost pressures we face.
Our machine clothing success is based on a well executed long term strategy with a leader in machine clothing product technology, our technology and new product development is targeted to higher growth and value added markets of packaging and tissue, which sets us up for long term growth, we serve tier one customers strategically positioned.
On the most efficient machines.
And these are the machines best positioned to sustain that production in a downturn.
We operated at an optimum global manufacturing scale, providing superior service reliability in all markets.
Our customers consider as the partner of choice our belt help reduce the overall cost of production for our customers.
Our products are mission critical and consumable belt get replaced regularly resulting in less cyclical repeatable demand.
These leadership strength serve us well during the challenging economic conditions, particularly in the consumable and a recurring demand for our products.
Now turning to our engineered composites strategy when.
When the pandemic struck in 2020 coming on the heels of the Boeing 730, Max Groundings in 2019.
AAC team did a great job looking for new customers and more content with existing customers.
We have demonstrated that three D woven was a new and leading composite technology successful on the most advanced jet engine the leap engine the.
The slowdown in the pandemic in 2020 gave us time to take a breather and seek new areas to apply our composites expertise with.
We won new content with Boeing Sikorsky, Lockheed Martin and others, mostly on defense programs.
Today were nearly 50% government and defense work between the government work in the cost plus nature of our contract with Safran for Leap AC is more resilient today more diverse and better insulated from the economic cycle.
Longer term, we are pursuing new opportunities with various Oems on hypersonic wings fuselage space in both commercial and defense applications fixed wing and rotorcraft.
Our strategy is to continue to diversify our customer base and bring our composite leadership to the next generation aircraft development.
The both of our business segments are operating well have sound strategies in place our employees have done remarkably well learning how to be nimble productive and continue to do a great job for customers.
Demonstrating resiliency as a company and an ability to perform at high levels through the ups and downs of the last few years, we have a rock solid balance sheet, which we've prudently and successfully used or continue to use to invest in our people and organic growth, winning new customers and developing new materials and pursuing acquisitions that fit our strategy.
So with that I'll hand, it over to Steven.
Thank you Bill and good morning to everyone before I go into the results I.
We'll note that late in the quarter, we completed the purchase a group annuity contract to eliminate the liability associated with our U S defined benefit pension plans.
We first publicly disclosed our intention to go down this path in our Q3 2021 10-Q.
We believe that it was the right action for both our shareholders and our active and prospective retirees.
There was a significant accounting charge of $49 1 million and a much smaller cash impact of $12 6 million associated with this transaction.
This charge had a significant impact on our GAAP reported income and income taxes as I will discuss in a moment, we have excluded the accounting charge and associated tax effects, our adjusted EPS and adjusted EBITDA measures to aid investors in evaluating our ongoing underlying business.
Moving on I will talk first about the results for the quarter and then comment on the outlook for our business for the balance of the year.
For the third quarter total company net sales were $266 million, an increase of 12, 1% compared to the $232 4 million delivered in the same quarter last year.
Adjusting for currency translation effects net sales rose by 16, 5% year over year in the quarter.
In machine clothing also adjusting for currency translation effects net sales were up three 8% year over year, driven by increases in packaging pulp and engineered fabrics grades partially offset by modest declines in tissue and publication grades caused by timing of customer orders.
And deliveries.
Publication revenue remained close to 17% of Mcs revenue this quarter.
Engineered composites net sales again after adjusting for currency translation effects grew by 41, 6%, primarily driven by growth on the leap and CH 53 platforms with much of the growth on the latter driven by nonrecurring tooling and engineering efforts associated with the App to trans.
Asian effort.
During the quarter the AFC leap program generated about $40 million in revenue similar to the second year second quarter.
As we've discussed in the past our annual production plans call for fairly stable leaf production across all four quarters of 2022.
Third quarter gross profit for the company was $105 million, an increase of over 9% from the comparable period last year.
The overall gross margin decreased by 100 basis points from 39, 6% to 38, 6% of net sales driven by the mix effect of the higher growth in the <unk> segment.
Within the <unk> segment gross margin was up slightly at 51, 7% of net sales as the benefits of one time reversals of previously recognized expenses of $1 2 million and some pricing increases were offset by increased input costs.
For the <unk> segment gross margin increased from 16, 1%.
218.9, or 19, 8% of net sales driven by a larger benefit from changes in the estimated profitability of long term contracts.
Higher fixed cost absorption and mix effects.
During this quarter, we recognized net favorable change in the estimated profitability of long term contracts.
About $2 6 million.
Compared to a net favorable change of only about 800000 in the same quarter last year.
Third quarter, selling technical General and research expenses were $46 8 million in the current quarter down slightly from $47 4 million in the prior year quarter and were down as a percentage of net sales from 24% to 18.0%.
Driven by the impact of foreign exchange rates on the N C. S. T Gnr, partially offset by increased investments this year in R&D and selling expense.
Total operating income for the company was $53 6 million up from $44 5 million in the prior year quarter.
Machine clothing operating income rose by $1 8 million driven by lower S. T G in our expense.
And <unk> operating income rose by $7 1 million driven by higher gross profit, partially offset by higher <unk> expense.
We reported over $42 2 million in expense under other income and expense this quarter, primarily driven by the $49 million pension charge, partially offset by favorable foreign exchange currency revaluations of almost $7 million.
The pension settlement charge also resulted in the recognition of an income tax benefit previously included in our other comprehensive income.
In combination with the low pretax profit caused by the pension charge.
Tax benefit.
<unk> and an effective tax rate of negative 41, 9% compared to the 29, 4% effective tax rate in the same quarter last year.
Absent the effects of the pension charge and the associated tax benefit the effective tax rate. This quarter would have been 26, 6% lower than the same quarter last year due to favorable discrete adjustments this quarter.
Net income attributable to the company for the quarter was $10 7 million.
A reduction of over $20 million from $13 9 million last year.
The reduction was caused primarily by the higher other income and expense, partially offset by higher operating income and this quarter's unusual tax rate.
GAAP earnings per share was <unk> 34, this quarter compared to 95 since last year.
After adjusting for the impact of foreign currency revaluation gains and losses restructuring expenses.
Expenses associated with the <unk> acquisition and integration the pension settlement impact and the impact of the aviation manufacturing jobs protection Grant on last year's results.
Adjusted earnings per share was $1.15 this quarter compared to 83 last year.
Adjusted EBITDA increased by 13% to $68 1 million for the most recent quarter compared to the same period last year.
Machine clothing, adjusted EBITDA was $59 1 million or 38, 5% of net sales roughly flat compared to $59 2 million or 38, 4% of net sales in the prior year quarter.
<unk> adjusted EBITDA was $21 5 million or 20% of net sales.
Up from last year's $16 3 million or 28% of net sales.
Turning to our debt position total debt, which consists of amounts reported on our balance sheet as long term debt or current maturities of long term debt.
It was $447 million at the end of the most recent quarter down from $485 million at the end of the second quarter.
However, cash also fell by $44 million during the quarter.
As I mentioned earlier, the purchase of a group pension annuity entailed a use of cash of about $13 million and we also continue to invest in the CH 53 K program.
Okay.
As we look forward to the balance of 2022 the outlook for the machine clothing strike segment remains strong in a still challenging environment.
As Bill mentioned constant currency sales were up almost 4% for the quarter over the same quarter last year.
Looking at the as reported nominal currency results year to date, the average euro to U S. Dollar exchange rate has been $1 <unk>.
Compared to $1 20.
In the same period last year.
And obviously the rate is even lower below parity today.
We now expect an average rate for the full year of just over one dollar.
Which has an expected full year impact of over $20 million in terms of reduced revenues.
Some of this has been offset by increased demand for some for some products. While some has been offset by pricing actions, resulting in year to date revenues that were modestly higher than in the first three quarters of last year on a constant currency basis.
While there are still some concerns about the.
Sustainability of that demand in light of the growing risk of global economic contraction and the ongoing energy crisis in Europe , we have not seen any reduction in demand for our product.
In fact on a constant currency basis, including the benefit of higher pricing on certain products.
Orders in the third quarter of this year were up more than 4% compared to the same quarter last year.
For the full year, we now expect that the revenue declined by the Euro exchange rate will be effectively offset by pricing and increased demand, resulting in somewhat flat revenues for the full year compared to $602 million delivered last year.
Therefore, we are narrowing the range for revenue guidance to $595 million to $610 million compared to the prior range of $590 million to $610 million.
From a margin perspective in machine clothing.
We are continuing to see a rise in raw material costs, although logistics costs have come down significantly from their highs.
While the gross margin in the quarter was a very strong 51, 7% in line with our reported results from the same quarter last year.
Absent, one time benefits and currency effects.
Gross margin was down about 160 basis points year over year caused by those higher input costs.
We still expect to see additional inflation pressure in the fourth quarter.
Combined with the lower expected volume in the fourth quarter. This will likely lead to some sequential margin compression consistent with our prior guidance.
That said, we do not see as much downside risk to margins as we had expected when we last updated guidance.
Therefore, we are raising the bottom end of our segment guidance range by $5 million.
Resulting in the new range for empty adjusted EBITDA guidance of $215 million to $225 million.
Turning to engineered composites, we delivered a strong quarter very much in line with expectations.
Overall, the year is progressing largely as we expected when we last issued guidance. Although we are now less concerned about downside risk in 2022.
Therefore, we are raising our guidance range for seven segment revenues to a range of between 395 and $405 million up from the previous range of $380 million to $400 million.
From a profitability perspective, given the year is progressing largely as expected we are maintaining the previously issued guidance range for adjusted EBITDA of between 75 and $80 million.
Although we currently expect to be closer to the upper end of that range.
We are also updating our previously issued guidance ranges for company level performance, including revenue of between 990 and 1.01 billion.
Increase from prior guidance of 970 to 1.01 billion.
Effective income tax rate of 25% to 27% down from 28% to 30%.
Depreciation and amortization of between 71% and $72 million unchanged from prior year guidance.
Capital expenditures in the range of $75 million to $85 million unchanged from prior guidance.
GAAP earnings per share of between $2 84 and $3.14.
Reduced from prior guidance of $3 45 to $3 75.
Adjusted earnings per share of between $3 50, and $3 80.
Increased from prior guidance of $3 30 to $3 60.
And.
Adjusted EBITDA of between 240, and $255 million increased from prior guidance of $230 million to $250 million.
Returning to the present it was another strong quarter for both segments.
We are very pleased with the resiliency in terms of both sales and profitability of the machine clothing business.
We believe that it is well positioned to weather the macroeconomic conditions, we may see in Europe and globally in the coming quarters.
We're also very pleased with the top line performance of the engineered composites segment validating our growth strategy for that business.
We believe that its position on key programs heavily indexed towards narrow body commercial and defense programs is the right place to be in its markets.
I'd like to thank our employees in both segments for the hard work and results. They continue to deliver for the company.
And with that I would like to open the call for questions Lois.
Thank you and ladies and gentlemen, if you wish to ask a question. Please press. The one then zero on your Touchtone phone you will hear an acknowledgment tonnage being placed in the queue and you may remove yourself from queue at any time by repeating the ones you man.
And if you're using a speakerphone please pick up your handset before pressing the number.
Our first question is coming from the line of Peter Hi, Martin from Baird. Please go ahead.
Yeah. Good morning, Good morning, Bill and John .
And bill congratulations on the results just a follow up here on on the MTA margin kind of outlook. It seems like you are managing the inflation headwinds you know very well with the first three quarters margins have kind of averaged 38% and just wondering just when we think about guidance.
Some of the inputs that would have you kind of at the lower and the range I mean, I think that the.
Your EBITDA guidance for <unk> implies that you'd be below.
30% margin in the fourth quarter, if you're at the lower end of your range. Just just just wanted to understand how you're thinking about that thanks.
Yes, Thanks, Peter Yeah, we've got a team has done a remarkable job and you know we.
I think people like to think of supply chain challenges are over but we're still managing 24, seven and our teams are working very closely across the.
Supply purchasing factory planning to adjust so we are expecting cost pressures. We are seeing you know the inflation effects on wages and labors and labor costs in <unk>.
And that to increase a little bit in the fourth quarter. We've done really good job of offsetting that with absorption with a little bit of price have gone. So far I don't know Stephen you want to add to that.
Peter as we mentioned on the on a constant currency basis without some onetime benefits. The margin. This quarter gross margin was down about 160 basis points to last year. As we've said that increased this quarter by quarter, both because inflation is increasing through the year and also you know as we're consuming.
That was it.
Fabricated using that more expensive material.
So we would expect a somewhat larger and margin compression in the fourth quarter and you know I also mentioned, we have some allowance for some downside risk in that business in the fourth quarter. Our job is to manage those risks so they don't materialize and not to be at the low end of the margin and but look we think it is prudent to give that range.
And because those risks that exist in our job as I say is to manage through them as well.
We're confident.
We can stay within the guidance range certainly not fall below it at.
Always some risk on the horizon in the current environment.
Okay, and just as a follow up to that Steve. Thanks can you just update us on your kind of your pricing how that kind of rolls through.
Or is it more we would expect to see some of the pricing flow through as we get into next year and just to try to offset some of these headwinds.
Yes. It is.
As we've talked about before you know we have contracts and with various terms in one two or three years plus with our customers. So as we come to those contracts, we're managing those and those customers that we don't have contracts. We're obviously trying to get price with them as well. So we'll keep working that I think will evolve over time, it's not just going to happen overnight.
I've mentioned of ice cream, we have seen some benefit from pricing.
Quarter to date, and we expect to see a continuation of that benefit in fourth quarter, but large slugs of bar.
<unk> is more sticky as bill mentioned requires that.
Anniversary of a contract signing yes, certainly on the input side, we've seen price increases from our suppliers significant price increases from our suppliers we work with.
I appreciate the color thanks, guys.
Thanks Vivek.
Thank you. The next question is from Michael CMO lead them to a securities. Please go ahead.
Yeah.
Hey, good morning, guys nice results.
Maybe just a little bit more on the guidance to kind of stay where Peter was what are the drivers behind the implied fourth quarter guidance I mean, it looks like a pretty big step down across the board versus the results you've been putting up sort of the cadence on the third quarter.
Is there more seasonality in there or just trying to frame up why the fourth quarter looks pretty weak.
So I would look at is.
There are couple of factors in there looking at the topline obviously, we're going to see more impact in the fourth quarter from the weak euro than we saw in prior quarters.
It is now below parity.
The average the $1 six below there that's significant stepped out and that brings with it you know obviously significant drop through margin of just the lower the lower revenue in that in nominal terms at you.
Secondly, there are mix effects that go off at partially driven by that those currency effects and partially driven by the end of just other issues globally and that gives us some pause.
We tried to factor that into our business the fourth quarter. When you say seasonal so its always a delicate dance around the end of the fourth quarter.
The holiday periods shifting becomes more difficult. So it's not uncommon for deliveries to slip from the end of the fourth quarter into the first quarter.
And Theres certainly an allowance for some of that potentially happening again, this year, which can cause of lower LOE.
Lower fourth quarter.
Revenue and as I mentioned again that the drop through margins are so high and in machine clothing that significantly you know can significantly impacted and finally as I mentioned to Peter just the rising input costs have continued to rise and so we expect to see more impact in fourth quarter than we saw starting in third quarter and we had the.
Benefits in third quarter of 1.1, 0.2, $1 3 million of onetime prior accrual reversals, which certainly benefited us as well and we expect we don't expect to see a repeat of that in the fourth quarter.
Got it and just a follow up to and maybe not totally extrapolate this and you're probably not going to get to 23, but I would imagine some of the FX headwinds and <unk>.
Youre seeing I guess, the easing logistics, but should these costs should we be thinking about these same trends going into 'twenty, three and I guess.
Even brook tie and then a C. You've done really nice year in the in the recent quarters on the CH 53, K, but is that going to be a headwind to revenues next year or can that program grow in.
In 'twenty three.
Yeah.
Yes.
First question or the first part of your question I guess is yes, we expect to see input cost you know that they've been going up we're still looking at the inflationary environment that hasn't.
Seeing that improve.
So we will be planning for that as we go into next year. The CH 53 case. This year, we're building up the additional work we do some work already on the series B III Kay with a sponsor with some vertical tail and we're building a new production line. So there's a tooling and machines going in this year. So.
It will grow next year, but pretty pretty it's a different picture next year as we were going to production.
Yes, so Mike if I follow up taking the last part first on 53, K and you know we talk now just about 53 K in total externally, but if I go back to the two constituent parts, but the legacy work we had in the most recent app transition the legacy work its 13th growing production volume.
It's a great progress continuing to grow and you know.
That program this year will be in the $50 million range and it will grow next year.
The add on this year about transition, which will they also be about $50 million. This year, a little north of $50 million.
A large chunk of the revenue we recognize this year. He is onetime tooling expense and nonrecurring expense associated with that program on which we will recognize revenue.
Obviously that goes away next year, but we start to see growth in production revenue. So look net net net you know the production revenue on both parts is growing crazy the nonrecurring is going away.
When we spoke to you last quarter, we thought it would be about $100 million for the year and you know we said look we will certainly shoot for you now.
Getting somewhere close to that next year, we now expect north of a 100 million. This year on App transition all right I'm, sorry, 53, K in total more than 105 hundred 10 year.
That number will go down somewhat next year, we're not going to hit $110 million and 53 K next year, we will see growth in other programs, which will offset that so.
<unk> is still a great program. The underlying production is growing we've just got this slug of onetime revenue. This year on the first question just to add to what Bill said, we will next year see you know more of a benefit from pricing on the machine clothing side. So I don't think you should take the margins at <unk>.
You assume based on our guidance for fourth quarter, and just kind of drag that through the fourth quarter at the four quarters of 2023.
Okay, Okay, and just one more follow up and I'll get out of the way. It just on you mentioned a lot on FX I mean, you've got a lot of European operations are you getting a significant tailwind there to operating income or as you know the moving parts around rising wages energy you know everything else with it.
Operating European footprint, negating any of those potential up in comp or opex cost savings.
Well, okay. If if I think just in aggregate, obviously as I mentioned <unk> was down to machine clothing, because of the weakness of the euro.
But overall.
The top line is coming down so the euro is weaker at the top line comes down all of the expenses may come down, but I'm not losing maybe if you'd like to think of it on a transactional basis.
On the transaction translation basis, I'm still losing because the $100 million of revenues a year ago is worth only 80 million of revenues today and even if I generate the same operating margins. It's you know it's.
It's lower it's lower revenue so I'm not sure we're getting a huge tailwind to operating profit from that because the revenue is coming down by more than our costs are coming down.
In terms of the other factors you mentioned in Europe . Those are clearly concerned energy is increasing and so there are all of those are you know impacts which are which are further depressing. So certainly I would not view in any way the weak euro was a tailwind to our earnings it is clearly a headwind.
It's exactly that headwind is exacerbated by increased cost in Europe , particularly energy right now.
Okay perfect. Thanks, a lot guys I'll jump back in the queue.
Thank you and the next question is from Peter Keith.
Alan back Global please go ahead.
Hey, good morning, guys nice quarter.
Let me start you guys can you kind of.
Reset us on where you're at with the 787 now that Boeing is delivering again and your understanding there are a lot of inventory to clear, but I you know, it's a strong margin program for you. So I'm just trying to figure out you know.
What kind of ramp you see ahead and alterra delivering aircraft again.
Yeah I think.
I wish we were delivering again.
Basically our production still idled, we didn't deliver anything in the quarter.
So and.
That's the way it sits right now so until we get further word from Boeing that that's where it's going to sit.
Yeah, I I think Pete if you had asked US six months ago 79 months ago, we would have expected some nice rebound in 787 in 2023.
While we still certainly hoped to restart production in 2023, I don't think we expect to see the same rebound we would have seen six months or nine months ago, just given the rate at which Boeing is a is a destocking of our inventory. It's just not really fast enough to get production up and running in a meaningful way anytime soon.
Okay. That's helpful. I'm, a I just I asked you that I wanted to get a better feel for kind of the EC margin outlook, because I think that you know with a huge ramp you've seen in leap. This year you know.
To me the margins at AAC have held up pretty well right I think all in.
Maybe you're down a couple of points for 2022 and.
You know EBITA margins, despite a huge ramp in leap.
And I'm guessing maybe you know CH 53, maybe it's a big part of that.
And maybe you know.
I know the leaf will be up again next year, but we're hearing you know maybe not much of a tailwind from 787, and maybe a flattish CH 53, so maybe that augurs for kind of a I don't know a flattish outlook for margin for AUC next year is that is that fair or are there other kind of strings, you can pull on there.
Look one of the benefits, we will get next year compared to this year in AUC. This year, while CH 50, <unk> is generating a lot of revenue as I mentioned, a chunk of that revenue is tooling that tooling.
While it absorbs SG&A it does not absorb plant overheads, because theres no labor involved in making we're buying it from a third party we have a small amount of labor obviously in terms of scoping out the tooling tokens.
Some engineering overhead, but it doesn't absorb plant overhead and so the the contribution margin.
From that tooling revenue was less than the contribution margin from manufacturing revenue that tooling revenue goes away next year.
A portion of it will be replaced by increased manufacturing revenue, which would be beneficial. So there are some tailwind certainly two to AUC margin next year, we're obviously not in a position right now where we're guiding next year, so I'm not going to comment on whether it's either flat or up or sideways sideways you know, but it's it's certainly there are some tailwind to that margin.
Yes.
The timing of your question is very good and we're just about to go into our final annual operating plan reviews for next year next couple of weeks.
Okay, Yeah, Yeah, no that's helpful color on CH 53, there.
Appreciate that last one for me guys on jazz them I know, it's not a massive program for you guys in AUC, but but a decent one I think and we're hearing that.
They're looking at potentially different variants of jazz them and maybe that program could expand so I'm. Just wondering if you have a feel for what that means for you guys are you seeing greater demand signals for jazz them for you guys over the next year or so.
We're pretty pleased with the Jonathan program and.
I don't really want to comment on what the outlook is for next year, but.
Feel like we're in pretty good shape on it yes, we have a very good relationship with the customer there and so you know as that program matures and develops I expect us to mature and develop along with the customer.
Okay, Okay sounds good.
Look forward to hearing the update next next quarter. Thanks, guys.
Thank you.
The next question is I'm Gonna Tom Palmer from Cowen. Please go ahead.
Yes, good morning.
Could you remind us who the customers are on the 787 for you guys.
And obviously with Boeing, but which subcontract manufacturer yeah. So yeah. So we go through two two intermediary customers spirit in Kawasaki heavy gauge high.
Okay, and they haven't provided visibility on when you would restart production.
Not that I know of.
Okay.
On the.
On the leap program.
The GE numbers in terms of deliveries today.
Just curious like is there any kind of pinpoint on your end in terms of <unk>.
Continuing to ramp production and what are your expectations for next years.
Leap deliveries Eddie any pinch points, you mean any delays no. We don't have any pinch points in our production we've been ramping back up.
From a capacity standpoint, you know we've said this before when we build the capacity in 2019, we've continued to improve our productivity and efficiency.
We have plenty of capacity to ramp up over time here.
What was the second part of the question.
Okay.
To answer your question about.
He thought it was the first part of the second part is what do you expect to leap deliveries to be next year.
Yes, we haven't we don't have next year's plan yet.
So we can't really speculate on it but we as we did this year, we tend to set the whole year and try to level load. The factory. So we'll go through that discussion with Sapphire in the next couple of months.
Okay.
<unk> clothing could you talk a little bit about.
Channel inventory, if you still see any excess or.
Or are they just running with higher buffer and kind of what's the feedback from your from your sales folks who are close to that yes.
We don't see we don't see excess inventory in the channel and we're watching the the end market.
Theres a few signs around the world with some slowdowns.
And some of it would be a normal you know we saw some.
<unk> in the quarter and a couple of other grades which could be noise, but we're watching our orders have been good coming out of the third quarter going into the fourth quarter demand. We're watching you know box and packaging demand around the world and see how that plays out as we we've kind of gone past the Christmas season demand for boxes as we go into the end of the year. So we're watching that right now but.
So far so good.
And just lastly at AUC kind of where the largest content growth opportunities for you guys, which platforms.
At this point.
Okay.
So look I E.
From this point forward, there's still growth in leap for us and there is still growth for CH 53, K once we get to full rate production as you know.
The we're still in low rate initial production on that program overall.
Leaving aside for a moment the facts of where you know in start up mode on the App transition even on the prior content to it is it is low rate initial production will continue to grow over the next several years as our several lots of programs that are out there that are you know.
Nice growth opportunities that are smaller that we haven't talked about publicly and 787 at some point will rebound and bring with it some nice growth.
I wish I could give you a date for when that's going to happen, but it will ultimately they happened that is still a great aircraft. It's fantastic platform. It is a program that we're very happy to be on and and you know.
We're happy to meet the demand for that once that recovers.
Right, but in terms of the that's in terms of unit growth, but in terms of content growth was there any things that you are.
So you can tell I'm, sorry, I meant yes.
Sorry, I misunderstood your question sorry.
There are a variety of programs and certainly you know our pipeline is fairly full right now a lot of defense opportunities in the near term near term both missile type programs and rotorcraft type programs and you know there are several you know.
If you like other smaller commercial opportunities out there. So it's nothing we can really publicly talk about it in terms of specific opportunities at this stage.
I would think about it as a.
As a pursuit opportunity for us if you go back in time and look at our demonstrated success.
We're building the Boeing 787 frames, we want we want a new section on the aircraft that you know the pandemic slowed down but that they'll come around eventually, but one more content with Boeing we want more content on the F. 35, you know we're now up over I don't know 230 part numbers or something.
And.
And with Sikorsky, we won more work with them with the big win being the App transition program, but the theme is that we're very reliable supplier. We're a partner of choice. We work really closely with these companies and so we'll continue pursuing more content with them.
The existing <unk>.
OEM. So we talk about publicly Theres a couple of others that we don't talk about publicly that we're working with as well.
Thank you guys.
Thank you and once again, if you do have a question. Please press, one and zero and we have a follow up question from Mike Hussey of Maui.
Hey.
Hey, guys. Thanks for taking the follow up just looking out I mean, youre going through the planning period now for 'twenty, three but I mean, you guys had that $450 million in revenue.
C.
Out there is that.
As Youre looking at the landscape here you know with 787 beef I mean is that still doable or how are you guys thinking about that.
Yeah look I'm not going to provide guidance three months early on 2020 three I put that number out there at nine months ago or six months ago I guess.
Look as I mentioned I think on one of our prior calls at a b. There are puts and takes every quarter. Obviously the biggest negative we've seen from when we first put that number out as 787 as I mentioned, we wouldn't expect that to recover to the same extent, we we would have expected six or nine months ago, but there are some.
Things, which have moved the other way. It look net net net are you know I'd say that there are puts and takes that will update you on that.
In that you know it in three months time.
Certainly we everything suggests to US right now that agency will have.
Our solid 2023 with with great results, but we're not prepared to issue guidance at this stage.
Got it thanks guys.
Thank you and at this time there are no further question. Thank you.
Yeah.
Thank you both so 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.
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Yeah.
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