Q4 2023 Albany International Corp Earnings Call

February 27, 2024

Good day, and thank you for standing by welcome to Albany International fourth quarter 2023 earnings call.

Operator: Good day, and thank you for standing by. Welcome to Albany International's fourth quarter 2023 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone.

At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.

To ask a question during the session you will need to press star one on your telephone you will then hear an automated message advising your hand is right too.

Operator: You will then hear an automated message advising you of your hand. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to John Hobbs, Director of Investor Relations. Please go ahead.

To withdraw your question. Please press star one again.

Be advised that today's conference is being recorded.

I'd now like to turn the conference over to your Speaker for today, John Hobbs Director Investor Relations. Please go ahead.

Yeah.

Thank you Lisa and good morning, everyone welcome to Albany International fourth quarter earnings Conference call.

John Hobbs: Thank you, Lisa. And good morning, everyone. Welcome to Albany International's fourth quarter earnings 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 is a notice regarding our forward-looking statements and the use of certain non-GAAP financial measures and their reconciliation to GAAP. For the purposes of the conference call, those same measures apply to our verbal remarks this morning. Today, we will make statements that are forward-looking and contain a number of risks and uncertainties, which could cause actual results to differ from those expressed or implied. For a full discussion of these risks and uncertainties, please refer to both our earnings release of February 26, as well as our SEC filings, including our 10-K. Now, I turn the call over to Gunnar Cleveland, President and Chief Executive Officer, who will provide opening remarks. Gunnar?

For those listening on the call. Please refer to our press release issued last night.

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.

A reconciliation to GAAP for the purposes of the conference call. Those same statements apply to our verbal remarks. This morning today, we will make statements that are forward looking and contains a number of risks and uncertainties, which could cause actual results to differ from those expressed or implied for a full discussion of the.

These risks and uncertainties. Please.

Referred to both our earnings release of February 26.

As well as our SEC filings, including our 10-K.

Now I'll turn the call over to Glenn our Cleveland, President and Chief Executive Officer, who will provide opening remarks qunar.

Thank you John good.

Gunnar Cleveland: Thank you, John. Good morning, and welcome everyone. Thank you for joining us for our fourth quarter earnings call. Before we begin this call, I want to take a moment and acknowledge John Hobbs, who has been leading our investor relations functions for the past five years. John has been instrumental in communicating our story to the investment community and has taken the IR function at Albany to the next level. After a long career of nearly three decades in investor relations, John is retiring, and they will transition his responsibilities to J.C. Chenan.

Morning, and welcome everyone. Thank you for joining our fourth quarter earnings call.

Before I begin this call I want to take a moment and acknowledge John hubs, leading our investor relations functions for the past five years.

John has been instrumental in communicating our story to the investment community and has taken the IR function at <unk> to the next level.

After a long career with nearly three decades.

Investor Relations, Don is retiring and they will transition his responsibilities to JC shutdown.

We wish John and his wife, the best in his retirement and we welcome Casey.

Gunnar Cleveland: We wish John and his wife the best in his retirement, and we welcome JC to his new role. Moving to our 2023 report, I continue to be impressed with our operations and remain confident about the strengths of our company and our long-term growth potential. Technological innovation, material science know-how, operational execution, customer satisfaction, and capital discipline are all key to the long-term success of Albany.

His new role.

Moving to our 2023 performance.

I continue to be impressed with our operations and remain confident about the strengths of our company and our long term growth.

Technological innovation and material science, Knowhow operational execution customer satisfaction and capital discipline are all key to the long term success of Alberta.

I will provide an overview of 2020 Three's financial performance, Rob will later discuss our fourth quarter results in detail and provide our outlook for 2024.

Gunnar Cleveland: I'll provide an overview of 2023's financial performance, and Rob will later discuss our fourth quarter results in detail and provide our outlook for 2025. In 2023, our businesses will remain focused on operational execution and deliver outstanding financial performance. This is a testament to the strong management team at Albany who have stayed a step ahead of global macroeconomic issues and allowed us to deliver our high-quality products on time with excellent financial results. We closed the year with consolidated revenue of $1.15 billion, up 11%, primarily driven by 12% top-line growth in our engineered composites business, along with 10% top-line revenue growth in machine clothing, largely resulting from our recent handbuck acquisition. Importantly, we grew Adjusted EBITDA to $265 million, up 5% over the prior year.

In 2023, our businesses remain focused on operational execution and delivered outstanding financial performance. This is a testament to the strong management team at Albany.

Date, a step ahead of global macroeconomic issues and allowed us to deliver our high quality products on time with excellent financial results.

We closed the year with consolidated revenue of one point.

$15 billion up 11%, primarily driven by 12.

12% topline growth in our engineered composites business, along with 10% of topline revenue growth and machine clothing large fleet, resulting from our recent acquisition.

Importantly, we grew adjusted EBITDA to $265 million up 5% over the prior year adjusted EBITDA margins came in just over 23% versus the prior year or 24, 5%. The margin compression was primarily driven by growth in sales at engineered composites.

Gunnar Cleveland: Adjusted EBITDA margins came in just over 23% versus the prior year of 24.5%. The margin compression was primarily driven by growth in sales at Engineered Composites and the acquisition of Highmark. The diluted net income for 2023 was $111 million, or $3.55 per share, up from $96 million last year or $3.04 per share. Diluted adjusted EPS for 2023 after adjustments primarily driven by expenses related to the Heimbach acquisition was $4.06 versus $3.87 in the prior year. Pre-cash flow for the year increased to $64 million from $32 million. Turning our focus to the segments, our machine clothing business, excluding Heimbarg, continues to be a strong, consistent performer. This year was no different.

The acquisition of hydro.

GAAP net income for 2023 was $111 million or $3 55 per share up from $96 million last year or $3 four.

Per share.

Diluted adjusted EPS for 2023 after adjustments, primarily driven by expenses related to the Heimbach acquisition was $4 <unk> versus.

Versus $3 87 in the prior year.

Free cash flow for the year increased to $64 million from $32 million.

Turning our focus to the segments, our machine clothing business, excluding heimbach <unk>.

Continues to be a strong consistent performer. This year was no different our machine clothing business, excluding heimbach reported $620 million in revenue up 2% versus prior year on a currency neutral basis, adjusted EBITDA was $229 million up 3% again.

Gunnar Cleveland: Our machine folding business, excluding handbags, reported $620 million in revenue, up 2% versus the prior year. On a currency-neutral basis, adjusted EBITDA was $229 million, up 3% again, on a currency-neutral basis, that just the EBITDA margin was 37%. The segment finished 2023 very strong, completing backlog orders and posting better results than we had anticipated, especially in North America and Asia. The Heimbach acquisition added 51 million to machine clothing's top line for the final four months of 2023 and was modestly diluted to GAAP earnings. We continue to be pleased with the addition of Heimbach and the expanded presence in both European and Asian markets. Integration remains on track, and we expect that it will be accreted on a GAAP basis in 2025. Our machine clothing business is well positioned globally, with an increased share of our customers serving the secularly growing packaging and tissue markets, both of which continue to grow for us on a global basis. This was offset somewhat by weaker engineered fabric demand, particularly in Europe.

On a currency neutral basis.

The EBITDA margin was 37%.

The segment finished 2023 very strong completing backlog orders and posting better results than we had anticipated, especially in North America and Asia.

The <unk> acquisition added $51 million to machine clothing stock line for the final four months of 2023 and was modestly dilutive to GAAP earnings. We continue to be pleased with additional highmark and the expanded presence in both European and Asian markets integration remains on track and we expect.

That it would be accretive on a GAAP basis in 2025.

Our machine clothing business is well positioned globally with an increased share of our customers serving the secular leaf growing in packaging and tissue markets, both of which continued to grow for us on a global basis. This.

This was offset somewhat by weaker engineered fabrics demand, particularly in Europe. Overall, we saw a positive impact to our bottom line results from both product and geographic mix.

Machine clothing continues to demonstrate world class execution across global markets.

Our engineered composites segment is executing on this long term growth strategy. The segment reported revenue of $477 million up 12% versus the prior year, while adjusted EBITDA margins expanded 60 basis points to 19% compared to 2022 growth was driven by commercial programs, including Boeing 780.

Seven and new programs that kicked off in late 2022.

ASE leased revenues was $175 million up approximately $15 million year over year in line with our most recent guidance.

Gunnar Cleveland: Overall, we saw a positive impact on our bottom line results from both product and geographic mix. Machine Clothing continues to demonstrate world-class execution across its global market. Our engineered composite segment is executing on its long-term growth strategy. The segment reported revenue of $477 million, up 12% versus the prior year, while adjusted EBITDA margins expanded 60 basis points to 19% compared to 2022. Growth was driven by commercial programs, including Boeing 787, and new programs that kicked off in late 2022. ASC LEAP revenues were $175 million, up approximately $50 million year-over-year, in line with our most recent guidance. Turning to U.S. government programs, we made first article delivery of the CH53K app transition in the second quarter of the year, ahead of schedule. The execution of the AEC operations team was exemplary, and their ability to timely deliver on this program was noted by the Institute.

Turning to U S government programs. We made first article delivered three of the CH 53, K App transition in the second quarter of the year ahead of schedule and execution of the AUC operations team was except blurry and their ability to timely deliver on this program was noted by the industry.

Recurring production revenues on defense programs were up in aggregate year over year. This growth was masked by lower 2023, non recurring revenues associated with the standup of the CH 53 apps.

Consistent production lines. These nonrecurring efforts were largely completed in the first half of 2023.

We have a robust business development pipeline and have won significant new business in 2023, which will result in revenues in the short term, notably in 2023, we had significant growth in space programs in other emerging platforms.

Aac's consistent ability to deliver a quality product on time to our customers is a significant competitive advantage when competing for new business.

Yeah.

Turning to our business strategy machine clothing, as a consumable aftermarket business that performs consistently year in and year out Albany International machine clothing benefits from our long standing reputation for liability.

Gunnar Cleveland: Recurring production revenues on defense programs were up in aggregate year over year. However, this growth was matched by lower 2023 non-recurring revenues associated with the standoff of the CH-53K after transition production. These non-recurring efforts were largely completed in the first half of 2020.

Logical leadership that our customers value.

The business generates strong cash flows and provide some excellent return on capital.

Successful integration of <unk> will generate systemwide efficiency and enhanced customer service.

Integration is designed to drive earnings and cash flow growth in the years to come.

Engineered composites will continue to be an important source of growth.

As we focus on building out our business by discipline selection of strategic partners and programs with a focus on capital efficiency.

Gunnar Cleveland: We have a robust business development pipeline and have won significant new business in 2023, which will result in revenues in the short term. Notably, in 2023, we expect significant growth in space programs and other emerging platforms. AEC's consistent ability to deliver a quality product on time to our customers is a significant competitive advantage when competing for new systems. Turning to our business strategy, machine clothing is a consumable aftermarket business that performs consistently year in and year out. Albany International Machine Clothing benefits from a long-standing reputation for reliability and technological leadership that our customers value.

From an operations per segment perspective.

We will continue to deliver world class execution and to meet our customers quality and delivery requirements. Our reputation in the marketplace continues to grow and our business development pipeline will provide us with growth opportunities over the medium term or.

Our continued investment in proprietary and differentiated technologies will translate into meaningful growth over the long term.

Our balance sheet remains very strong, allowing us to pursue those investments that provide the highest risk adjusted returns to our shareholders.

During 2023, the company executed on the acquisition of Heimbach invested in organic growth at AAC.

We need to invest significantly in R&D and increase our dividends to shareholders. This disciplined approach to capital management, we will continue to inform our business decisions.

Gunnar Cleveland: The business generates strong cash flows and provides an excellent return on capital. A successful integration of Heimbach will generate system-wide efficiency and enhance customer service. The integration is designed to drive earnings and cash flow growth in the years to come. Engineered composites will continue to be an important source of growth, as we focus on building out our business through the disciplined selection of strategic partners and programs with a focus on capital efficiency. From an operations perspective, we will continue to deliver world-class execution and meet our customers' quality and delivery requirements. Our reputation in the marketplace continues to grow, and our business development pipeline will provide us with growth opportunities over the medium term. Our continued investment in proprietary and differentiated technologies will translate into meaningful growth over the long term.

With that I will hand, it over to Rob to provide more details on the quarter and our outlook for 2024.

Rob.

Thank you Dan and good morning, everyone.

I will review our fourth quarter results of 2023, and then provide our outlook for 2024.

During the quarter a number of factors resulted in us delivering a result, well ahead of our earlier expectations.

That machine clothing, we successfully executed on a number of consumer orders, resulting in drawing down our backlog to more normalized levels. We also saw accelerated procurement savings as a result of the team's efforts to optimize our supply chain.

A nice early win from our integration.

Additionally, high box Standalone results were better than expected for the quarter.

Corporate expenses came in lower than expected as we are managing controllable expenses.

Our favorable effective tax rate for the quarter is due to the impact of a few discrete items.

For the fourth quarter, we reported net sales of $324 million up 24% from the fourth quarter of last year, and 19, 6% versus the prior year period on a currency neutral basis.

Growth was primarily driven by high Mark.

Fourth quarter machine clothing, net sales, excluding <unk> increased two 8% on a currency neutral basis versus the fourth quarter of the prior year.

Higher sales to the packaging and tissue indices were partially offset by contraction in our other end markets, most notably engineered fabrics.

Gunnar Cleveland: Our balance sheet remains very strong, allowing us to pursue those investments that provide the highest risk-adjusted returns to our shareholders. During 2023, the company executed on the acquisition of Heimbach, invested in organic growth at AEC, continued to invest significantly in R&D, and increased its dividends to shareholders. This disciplined approach to capital management will continue to inform our business decisions. With that, I will hand it over to Rob to provide more details on the quarter and our outlook for 2024.?? ??? ??? ??? ?

In terms of geography markets in the Americas are stronger year over year Asian markets are slightly positive while European markets remained soft.

Junior composites net sales of $132 million increased two 6% on a currency neutral basis compared to the fourth quarter of 2022, our growth was driven by strength across our commercial and space programs.

Fully offset by our defense programs.

I would like to highlight that our recurring production revenues on the defense programs increased year over year, driven by both CH 53, K and Jasmine.

During the fourth quarter of last year, there was significant onetime revenue generated by the standup of the CH 53, K and transition production line.

Rob: Thank you, Gunnar, and good morning, everyone. I will review our fourth-quarter results for 2023 and then provide our outlook for 2024. During the quarter, a number of factors resulted in us delivering a result well ahead of our earlier expectations. At Machine Clothing, we successfully executed on a number of consumer orders, resulting in drawing down our backlog to more normalized levels. We also saw accelerated procurement savings as a result of the team's efforts to optimize our supply chain. A nice early win from our IBOC integration. Additionally, Eibach's stand-alone results were better than expected for the quarter. Corporate expenses came in lower than expected as we were managing controllable expenses.

Fourth quarter gross profit for the company was $120 million up $23 million or 22, 5% from the same period last year.

Within machine clothing, excluding landmark favorable product mix and lower procurement costs drove an increase in gross margins to 61, 9% up 270 basis points versus the same period last year.

While at AUC gross margin finished with a strong 20% up 120 basis points versus the same period last year.

So Pat for the quarter, we recognized a net unfavorable change in the estimated profitability on our long term contracts of $1 5 million compared to a net unfavorable change of $1 7 million.

In the fourth quarter of last year.

Net R&D expenses were in line with the prior year and represent approximately 2% of our revenues.

SG&A expenses for the fourth quarter were largely unchanged on the base business from the prior year the year over year growth in total SG&A is due to the addition of Heinbach.

Rob: Our favorable effective tax rate for the quarter is due to the impact of a few discrete items. For the fourth quarter, we reported net sales of $324 million, up 20.4% from the fourth quarter of last year and 19.6% versus the prior year period on a currency-neutral basis. The growth was primarily driven by high volume.

GAAP net income attributable to the company for the quarter was $30 5 million compared to $18 1 million last year.

<unk> results reduced GAAP net income by approximately $5 million largely the result of inventory step up and initial integration expenses.

GAAP diluted EPS was <unk> 97 per share in this quarter versus CPA.

In the same period last year.

After adjustments primarily related to the Hamlin acquisition as detailed in our non-GAAP reconciliation.

The adjusted EPS on a diluted basis was $1 22 compared to <unk> 75.

Rob: Fourth quarter machine clothing net sales, excluding high buck, increased 2.8% on a currency-neutral basis versus the fourth quarter of the prior year. Higher sales to the packaging and tissue industries were partially offset by contraction in our other end markets, most notably engineered fat. In terms of geography, markets in the Americas are stronger year over year. Asian markets are slightly positive, while European markets remain soft.

In the same period last year.

Please note that from this call going forward EPS results will be reported on a diluted basis.

Adjusted EBITDA of $75 million for the fourth quarter increased 28% from the prior year period.

Machine clothing, adjusted EBITDA, excluding heimbach increased 12% to $58 6 million.

Segment, adjusted EBITDA margins were 37, 5%.

The 80 basis point improvement from the prior year.

And pack operations added $3 million of adjusted EBITDA.

Rob: Engineered composites net sales of $132 million increased 10.6% on a currency-neutral basis compared to the fourth quarter of 2022. Our growth was driven by strength across our commercial and space programs, partially offset by our defense program. I would like to highlight that our recurring production revenues on the defense programs increased year-over-year, driven by both CH-53K and JASMINE. During the fourth quarter of last year, there was significant one-time revenue generated by the stand-up of the CH-53K ad transition production line. Fourth quarter gross profit for the company was $120 million, up $23 million or 22.5% from the same period last year, within machine clothing, excluding line box.

Adjusted EBITDA was $27 1 million or 21% improvement over the prior year.

Margins at AAC or 25% of sales.

Third 70 basis point improvement over the prior year period.

During the fourth quarter, the company generated $39 million of free cash flow.

With cash flow from operations operating activities at 74 million and capital expenditures at 35 nine.

Over the fourth quarter, we paid down debt of over $30 million.

Our balance sheet remains strong with a cash balance of $173 million and over $350 million of borrowing capacity under our committed credit facility.

Our net leverage at the end of the year came in at approximately one times, giving us financial flexibility to execute our clients.

Finally, I want to touch upon heimbach.

<unk> added $36 million to our top line for the quarter and was modestly dilutive to our GAAP earnings I am impressed with their people in technology. Our integration efforts are on track and have confidence in our ability to meet the financial targets outlined at the time of the acquisition announcement.

Turning to our outlook on slide 24, we are forecasting another strong year with double digit top line growth and continued attractive EBITDA margin.

Moving to our machine clothing outlook, we would expect the business to perform well in the coming year, we anticipate markets in Europe remained soft by historic standards. However Asian markets are showing early indications of improvement from the soft patch. They saw in the first half of 2023 markets in the Americas remain healthy.

Rob: Favorable product mix and lower procurement costs drove an increase in growth margins to 51.9 percent of 270 basis points versus the same period last year. Meanwhile, at AEC, growth margins finished with a strong 20%, up 120 basis points versus the same period last year. Note that for the quarter, we recognize a net unfavorable change in the estimated profitability on our long-term contracts of $1.5 million compared to a net unfavorable change of $1.7 million in the fourth quarter of last year. Net R&D expenses were in line with the prior year and represent approximately 3% of our revenue. SG&A expenses for the fourth quarter were largely unchanged on the base business from the prior year.

For 2024, I'll hand back out condition as expected will meaningfully add to our revenue outlook and will be dilutive to our GAAP results.

The low end of our machine clothing guide assumes weaker than expected global market conditions and corresponding lower absorption.

The top end of our range assumes robust markets in the Americas continued recovery in Asia and improvement in Europe.

We expect revenues of $760 million to $790 million and adjusted EBITDA.

<unk> hundred $30 million to $260 million.

Turning to AUC, we are on high demand programs and most are continuing to ramp the sustained production levels.

Going forward, we expect our long term growth continued to be driven by increasing production across commercial defense and space programs.

Rob: The year-over-year growth in total SG&A is due to the addition of Heinbaum. That net income of several to the company for the quarter was $30.5 million compared to $18.1 million last year. And by the results, we do scat net income by approximately $5 million, largely the result of inventory step-up and initial integration expenses. Thus, diluted EPS was $0.97 per share in this quarter versus $0.58 in the same period last year. That's your adjustments primarily related to the Heimbach Acquisition as detailed in our non-GATT Reconciliation. The adjusted EPS on a diluted basis was $1.22 compared to $0.75 in the same period last year.

We have a strong backlog and we continue to see positive results from our ongoing business development efforts.

We have won new business that we expect will add revenues in the second half of the year and set us up for continued growth into 2025.

As we think about our guide the low end of our guide beyond normal variability takes into account the potential for lower than planned lease component demand from our customer or delays in the War award new programs reflected in our plan the.

The high end of the range takes into account the potential for earlier than anticipated start on new wins and a higher than expected to lead production.

Overall for the segment, we are providing an initial revenue guide of 500 $540 million from a profitability perspective, we expect to see a positive shift in product mix and a modest improvement in margins. Accordingly, we are guiding our adjusted EBITDA at $97 million to $107 million.

I would like to bring your attention to some headwinds impacting our 2024 adjusted EPS.

Rob: Please note that from this call going forward, EPS results will be reported on a diluted basis. Adjusted EBITDA of $75 million for the fourth quarter increased 28% from the prior year period. Machine clothing adjusted EBITDA, excluding Heimbach, increased 12% to $58.6 million.

We will see higher pension expense than our base business due to the exploration of prior accounting treatment relating to the amortization of prior service cost.

This will result in a noncash expense of approximately $4 million or <unk> <unk> per share.

Purchase accounting adjustments from the <unk> transaction will increase depreciation and amortization by $2 7 million or approximately <unk> <unk> per share.

And finally, our previously placed interest rate swap arrangement will mature at the end of October 2024.

Rob: Segment adjusted even-though margins were 37.5 percent, an 80 basis point improvement from the prior year. Heimbach operations added $3 million of adjusted EBITDA. AEC's adjusted EBITDA was $27.1 million, a 21% improvement over the prior year. Margins at AEC were 20.5% of sales, a 170 basis point improvement over the prior year period. During the fourth quarter, the company generated $39 million of free cash flow, with cash flow from operating activities at $74 million and capital expenditures at $35 million. During the fourth quarter, we paid down debt of over $30 million.

We are exploring various alternatives to minimize the impact for.

For guidance purposes, we have estimated the full impact to our net interest costs at approximately $2 6 million or <unk> <unk> per share assuming current interest rate levels.

Together. These items represented 23 headwinds to our EPS guide for 2024.

These impacts excluding interest are noncash.

At a consolidated level, our <unk> core guidance is as follows.

Revenue of 1.2 dollars 6 billion to 133 billion adjusted EBITDA between 260, and 290 million <unk>.

Adjusted EPS between $3, 55, and $4 <unk> per share.

Depreciation and amortization between 85 to 95 million.

Second income tax rate of 29% to 31%.

Rob: Our balance sheet remains strong with a cash balance of $173 million and over $350 million of borrowing capacity under our committed credit facility. Our net leverage at the end of the year came in at approximately one times, giving us financial flexibility to execute our plan. Finally, I want to touch on Heimbach.

Capital expenditures in the range of 90 million to $95 million.

Our goal with this guidance is to provide investors with a forecast with equally balances the risks and opportunities we see in the coming year.

Now I would like to open the call for questions operator.

Thank you.

Mind, you if you would like to ask a question. Please press star one on your telephone.

We also ask that you wait for your name to be announced before you proceed with your question.

One moment, while we compile the Q&A roster.

Our first question today is coming from Steve Tusa of Jpmorgan. Your line is open.

Rob: Heimbach added $36 million to our top line for the quarter and was modestly diluted to our cap earnings. I'm impressed with their people and technology. Our integration efforts are on track, and I have confidence in our ability to meet the financial targets outlined at the time of the acquisition announcement. Turning to our outlook for 2024, we are forecasting another strong year with double-digit top-line growth and continued attractive EBITDA margins. Moving toward the machine clothing outlook, we expect the business to perform well in the coming year. However, we anticipate markets in Europe will remain soft by historic standards.

Hey, good morning, how are you.

Hi, good.

Good morning.

John Thanks for coming to your congrats on retirement.

Thank you very much.

Just maybe a little bit of color on the <unk>.

Orderly cadence for the year on sales and margin by segment.

For 24.

Yes.

We haven't provided a quarterly guidance I think.

If you look historically.

We tend to be a little bit lighter in Q1, but I would just say that when you look at the nature of our business purely as an a seasonality that is really significant.

So I wouldnt overweight one quarter significantly over another at this point.

Okay and then.

Rob: However, Asian markets are showing early indications of improvement from the soft patch they saw in the first half of 2023, while markets in the Americas remain healthy. For 2024, the Heimbach acquisition, as expected, will meaningfully add to our revenue outlook and will be diluted to our GAAP results. The low end of our machine closing guide assumes weaker-than-expected global market conditions and corresponding lower absorption rates. The top end of our range assumes robust markets in the Americas, continued recovery in Asia, and improvement in Europe. We expect revenues of $760 to $790 million and adjusted EBITDA of $230 to $260 million. Turning to AEC, we are on high-demand programs, and most are continuing to ramp up sustained production levels. Going forward, we expect our long-term growth to continue to be driven by inclusive production across commercial, defense, and space flows.

Just maybe your latest.

Color on what's happening.

At Boeing and how you guys are kind of aligning with there.

Production, which seems a little more volatile than than expected maybe.

Maybe a few months ago.

Yes.

Obviously, we are watching that with with high interest.

Steve.

Our contract and relationship is with so from.

They said it very succinctly in their earnings call that they are they have a plan for the year.

And we will continue on that so there are changes coming from from Boeing and Thats kind of our position as well.

We have a plan we recognize there might be a.

A reduction in that that will have some.

The revenue impact, but mostly revenue impacts so.

We'll wait and see it will be.

The first quarter will probably be indicative to where the year goes.

But at least going to book.

Rob: We have a strong backlog, and we continue to see positive results from our ongoing business development efforts. We have one new business that we expect will add revenues in the second half of the year and set us up for continued growth into 2025. As we think about our guide, the long of our guide, the unnormal variability takes into account the potential for lower-than-planned leap component demand from our customer or delays in the reward of new programs reflected in our plan. The high end of the range takes into account the potential for an earlier than anticipated start on new winds and a higher than expected lead production.

And then just one more quick one just cash conversion for 'twenty four thanks, a lot for the details.

Alright, thank you.

I'm, sorry say that again.

Cash and burn cash in Brooklyn.

Bergen.

It will be an improvement over this year.

That is what we're expecting we haven't provided that level of detail, but we are.

Yes, if you look at our prior Investor day materials, our long term goal is to get net income conversion.

Your net income.

So.

We're not there yet we're still in growth mode.

We sell are ramping up on a number of programs today, but it should be higher than this year for sure.

Great. Thanks, a lot guys.

Thank you one moment for the next question.

Our next question will be coming from John Fry.

Rob: Overall, for the segment, we are providing an initial revenue guide of $500 to $540 million. From a profitability perspective, we expect to see a positive shift in product mix and a modest improvement in margin. Accordingly, we are guiding our adjusted EBITDA at $97 million to $107 million. I would like to bring your attention to some hot headwinds impacting our 2024 adjusted EPS. We will see higher pension expense in our base business due to the exploration of prior accounting treatment relating to the amortization of prior service costs. This will result in a non-cash expense of approximately $4 million, or $0.09 per share. Purchase mechanic adjustments from the Heimbach transactions will increase depreciation amortization by $3.7 million, or approximately $0.08 per share. And finally, our previously placed interest rate swap arrangement will mature at the end of October 2024. We are exploring various alternatives to minimize this impact.

<unk> of brands your line is open.

Thanks, Good morning, John Robin Garner.

That's on a good quarter.

I guess I'll start with can you just give us a sense if theres been any communication with upfront on the leap contract pricing structure.

Could you see this transition from a from a cost plus.

Fixed price.

In the near term.

I would imagine that fixed price would be quite attractive for your margin profile.

Yes.

<unk>.

The structure remains the same.

The cost to us.

Our program and coming into this.

Roll I can tell you that.

Im surprised to see that that is the.

<unk>.

The contract is.

Is constructive.

And as we go forward our goal our joint goal is to.

Reduce the call.

Cost of.

Three D woven.

Product so that it becomes more attractive in the market beyond.

Leap and some of the other projects that we're doing so.

Rob: For guidance purposes, we have estimated the full impact on our net interest costs at approximately $2.6 million, or $0.06 per share, assuming current interest rate levels. Together, these items represent a 23-cent headwind to our EPS by 2024. These impacts, excluding interest, are non-cast.

We're looking at that structure, and we will update when we when we're ready.

Perfect. Thanks, that's helpful. Just a quick follow up.

On the integration of <unk> of any additional lessons that you may be learned in terms of pricing.

That you can incorporate in the existing business or vice versa. If you could just share with us share with us.

Yes, you learn you always learn something when you when you get too into the details of our new of a new company I've spent quite a bit of time, there I've been to four of the sites.

Rob: At a consolidated level, our 2024 guidance is as follows: revenue of $1.26 billion to $1.33 billion. Adjusted EBITDA between $260 and $290 million. Adjusted EPS between $3.55 and $4.05 per share. Depreciation and amortization between $85 to $95 million, an effective income tax rate of 29% to 31%, and capital expenditures in the range of $90 million to $95 million.

Getting into the detail I think the best way to describe this is we have we have a very strong.

Machine clothing business.

They're very good at what they do.

What what.

We are doing with the machine clothing business is what you should expect to see from the <unk> integration. The bonus here is that we're getting new technology, we're getting.

Stronger precedence, both in Asia and Europe.

And technology that is complementing.

We're seeing that we're very confident with where we're going with this integration. It's a very good acquisition.

Perfect. Thank you I'll jump back in the queue.

Operator: Our goal with this guidance is to provide investors with a forecast that equally balances the risks and opportunities we see in the coming year. Now, I would like to open the call for questions. Operator?

Thank you.

Thank you one moment for the next question.

And our next question will be coming from Pete Australia.

Securities Your line is open.

Hey, good morning, I'm on for <unk>. This morning, thanks for taking our questions.

Operator: Thank you. As a reminder, if you would like to ask a question, please press star 11 on your telephone. We also ask that you wait for your name to be announced before proceeding.

First on machine clothing.

Good morning on the machine clothing segment, what is your outlook for growth for the high end box business. In 2024 is there any meaningful difference between the growth youre expecting for the year there relative to your legacy machine clothing business.

Steve Tufa: One moment while we compile the Q&A raffle. Our first question today is coming from Steve Tufa of J.P. Morgan. Your line is open. Hey, good morning. How are you?

Now I think.

We look at the whole business as a GDP growth.

John Hobbs: All right, Steve. John, nice work with you, congrats on retirement. Thank you very much. Maybe a little bit of color on the quarter and for the year on sales and margins by segment. 24.

Business, we expect.

Hi, I'm back to B B.

The relatively flat based on the.

Concentration of European.

Businesses, but they also have a business in Asia. So with that we think the first year will be flat.

Rob: Yeah, so we haven't provided quarterly guidance. I think if you look historically, you know, we tend to be a little bit lighter in Q1, but I would just say that when you look at the nature of our business, there really isn't any seasonality that is really significant. So I wouldn't overweight one quarter significantly over another at this point.

Great. Thanks, and then just as a follow up.

With the step up for capital expenditures in your guidance. This year. If you could just provide some more detail there how much of the year over year increase is related to the acquisition and are there any areas within AUC you could talk about where you are targeting increased capital spending this year to drive future growth. Thank you.

Rob: Okay, and then, uh...just maybe your latest color on what's happening, you know, at Boeing and how you guys are kind of aligning with their production, which seems a little more volatile than expected, maybe a few months ago. Yeah, obviously, we're watching that with high interest. Steve.

Sure.

Rob we are going to see a higher level just with the addition of hi, Mark.

They are investing in their capacity as.

As well as capabilities, so thats update impact as it relates.

ADC.

Continue to be in ramp mode in a number of programs plus some other wins that were going to need to make some investment in this year to support the growth.

10% growth I mean, thats really just fundamental is we're going to see.

Gunnar Cleveland: But our contracting relationship is with Safran, and they said it very succinctly in their earnings call that they have a plan for the year and will continue on that until there are changes coming from Boeing. And that's kind of our position as well.

On some level of elevated capex for <unk> for a little bit of time here. However, I would I would just say that the other the other case, where we're investing and it shows up as purchase software is we did have some C&I and CRE and other requirements.

But overall.

The investment level that will reflect in for this year really just reflects topline growth double digit top line.

Great. Thanks for the color.

Gunnar Cleveland: We have a plan. We recognize there might be a reduction in that. That'll have some revenue impact, but mostly revenue impact. So we'll wait and see. The first quarter will probably be indicative of where the year goes with the leap going to Boeing. And then just one more quick one, just cash conversion for 24. Thanks a lot for the details. I'm sorry, should I say that again, Steve?

Okay.

Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone one moment for the next question.

And our next question will be coming from Jordan line of Bank of America. Your line is open.

Hey, good morning, Thanks for taking the question.

I know you guys said that you are aligning with <unk> guide are you seeing any changes.

From there.

Ability to take on excess inventory and then also to for your production schedule. This year.

Rob: Oh, cash conversion. Cash conversion. We'll be in approval this year. That is what we're expecting. We haven't provided that level of detail, but we are, you know, if you look at our prior Investor Day materials, our long-term goal is to get net income conversion, you know, just, you know, near net income. So, you know, we're not there yet.

Are you doing anything different to avoid the excess inventory that they held through 2023.

Our plan with <unk> has been.

<unk> has been set for the year, we have not seen any any changes there was some buildup.

Rob: We're still in growth mode, so we are still ramping up on a number of programs, Steve, but it should be higher than this year for sure. Great. Thanks a lot, guys.

Our inventory last year, because we kept it flat.

Flat through.

Through the end of the year, but with a higher consumption.

Expected this year that inventory, both both with us from <unk>.

Operator: Thank you. One moment for the next question. Our next question will be coming from John Franz. Engelbert, your line is open.

Slowly b.

Reduced.

So.

Our plan is.

The program is.

Relatively flat for the year, which which will impact with a lower inventory.

John Franzreb: Thanks. Good morning, John. Robin Gunner.

Gunnar Cleveland: Congratulations on a good quarter. I guess I'll start with, can you just give us a sense if there's been any communication with Saffron on the LEAP contract pricing structure? And could you see this transition from a cost plus to a fixed price? You know, in the near term, I would imagine that a fixed price would be quite attractive for your margin preference. Yeah, the structure remains the same. It is a costless

Okay got it and then just one follow up too.

On M&A could you guys talk a little bit about the pipeline right now.

Is there any specific area you guys are looking to increase exposure.

Yes.

There is there is a lot of activity I think it's picked up.

We get the.

New opportunities.

Of us.

On a weekly basis.

We are assessing everything that makes sense for us.

Gunnar Cleveland: And coming into this role, I can tell you that I'm surprised to see that that is the way the contract is constructed. And as we go forward, our goal, our joint goal, is to reduce the cost of 3D-woven products so that they become more attractive in the market beyond LEAP and some of the other projects that we're doing. So we're looking at that structure, and we will update it when we're ready. Perfect. Thanks, that's very helpful.

We just wanted to make sure that it's a good fit for us and also that.

The multiple makes sense, we've seen some of the multiples.

Pretty high and with the cost of capital right now and we want to make sure that we make the right.

Acquisition, we're also looking at internal.

Where do we spend less.

Gunnar Cleveland: Just a quick follow-up. On the integration of Himebox, are there any additional lessons that you've maybe learned in terms of pricing that you could incorporate into the existing business or vice versa? Please share with us.

<unk> said, we have relatively high capital expenditure, because we see opportunities there with the returns.

Very accretive.

But we will continue to look in the market is.

Gunnar Cleveland: Yeah, you always learn something when you get into the details of a new company. I've spent quite a bit of time there. I've been to four of the sites, getting into detail.

Got it.

Got it. Thank you guys so much.

Great. Thank you.

Thank you one moment for the next question.

The next question is coming from <unk> Com team.

Gunnar Cleveland: I think the best way to describe this is that we have a very strong machine clothing business. They're very good at what they do. What we're doing with the machine clothing business is what you should expect to see from the Heimbach integration. The bonus here is that we're getting new technology. We're getting a stronger presence both in Asia and in Europe, and technology that is complementary. So we're seeing that.

T D.

Cowen Your line is open.

Thanks for taking the question the suspensive rights beyond <unk> could you talk about your assumptions for CH 53, K and F 35 for 2024.

So stay at 53 K continuous.

Gunnar Cleveland: We're very confident with where we're going with this integration. It's a very good acquisition. Perfect, thank you.

<unk>.

In line with the with the plan from from Sikorsky in the Marines.

Good program growth lots of work, we're actually here in Salt Lake City today.

Operator: I'll jump back. Thank you. Thank you. One moment for the next question. And our next question will be coming from Pete Osterlin of Truist Securities. Your line is open. Hey, good morning. I'm on for Mike Trimoli this morning.

During the call and will be spending time.

Later this week with Sikorsky.

On.

No.

Pete Skibitski: Thanks for taking our question. First, on machine clothing, morning, on the machine clothing segment, what is your outlook for growth for the Heimbach business in 2024? Is there any meaningful difference between the growth you're expecting for the year there relative to your legacy machine clothing business? No, I think we look at the whole business as a GDP growth business. We expect Heimbach to be relatively flat based on the concentration of European businesses, but they also have a business in Asia. So with that, we think the first year will be flat. Great, thanks.

The joint strike fighter I think we should expect to see some some growth too to relatively flat.

We know what Lockheed Martin is saying that they will they will build.

And we will support support to build we're ready to support that build rate but.

Last year it remained.

Below below 100.

We're hoping to see that it goes above 100, but we have planned for.

Right right around the 100 and our numbers.

Thank you and then could you also talk about it.

Rob: And then just as a follow-up, with the step-up for capital expenditures in your guidance this year, if you could just provide some more detail there, how much of the year-over-year increase is related to the acquisition? And are there any areas within AEC you could talk about where you're targeting increased capital spending this year to drive future growth? Sure, Pete. This is Rob.

Europe demand for machine clothing, and what you are saying regarding destocking. Thank.

Thank you.

Yes.

We've seen Europe being soft.

<unk>.

We don't see it becoming softer but.

We're keeping our eyes on Europe.

The latest.

Rob: We are going to see a higher level just, you know, with the addition of Pinebox. They are investing in their capacity as well as capabilities. So that's definitely an impact. As it relates to AEC, you know, we continue to be in ramp mode on a number of programs, plus we've added some other wins that we're going to need to make some investment in this year to support the growth. You know, with 10% growth, I mean, that's really just, you know, fundamental. We're going to see, you know, some level of elevated capex for a little bit of time here. However, I would just say that the other piece where we're investing, and it shows up with purchase software, is that we do have some CMMC and other requirements. But, you know, overall, the investment level that we're reflecting for this year really just reflects the top line growth, the double-digit top line. Great, thanks for the call. Thank you. As a reminder, if you would like to ask a question, please press star 11 on your remote control.

Expectations of GDP growth there.

Are you still on.

Three there.

Yes. Thank you that's all from me.

Oh sure.

Thank you that concludes today's Q&A session I will now turn the call back over to Golar.

Cleveland for closing remarks. Please go ahead.

Alright, Thank you and thank you everyone for joining us on the call today and we appreciate your continued interest in Albany International.

Thank you and have a good day.

This concludes today's conference call you may all disconnect.

Okay.

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Okay.

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Operator: One moment for the next question, and our next question will be coming from Jordan Linus of Bank of America. Your line is open. Hey, good morning.

Jordan Linus: Thank you for taking the question. I know you guys said that you're aligning with Tafran and CFM's guidelines. Are you seeing any changes?

Yes.

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Gunnar Cleveland: from their ability to take on excess inventory and then also for your production schedule this year. Are you doing anything different to avoid the excess inventory that they held through 2023? Our plan with Safran has been set for the year; we've not seen any changes. There was some build-up of inventory last year because we kept it flat through the end of the year, but with higher consumption. I expect that this year the inventory, both with us and Saffron, will slowly be reduced. So our plan on the program is relatively flat for the year, which will impact with a lower inventory. Okay, I got it.

Gunnar Cleveland: And then just one follow-up too. On M&A, could you guys talk a little bit about the pipeline right now? Is there any specific area you guys are looking to increase exposure? Yeah, there's a lot of activity. I think it's picked up.

Gunnar Cleveland: We get new opportunities in front of us on a weekly basis, so we are assessing everything that makes sense for us. We just want to make sure that it's a good fit for us and also that the multiple makes sense. We've seen some of the multiples be pretty high.

Gunnar Cleveland: And with the cost of capital right now, we want to make sure that we make the right acquisition. We're also looking at internal, you know, where do we spend as the last... Scholar said, you know, we have relatively high capital expenditure and that's because we see the opportunities there with the returns being very accretive. But we'll continue to look, and the market is active. Thank you guys so much. Thank you. Thank you. One moment for the next question. The next question is coming from Gautam Khanna. The Cowan, your line is open.

Gunnar Cleveland: Thank you for taking the question. This is Spencer Bridski from Lockheed Martin. Can you talk about your assumptions for the CH-53K and the F-35 for 2024? So CH-53K continues to grow in line with the plan from Sikorsky and the Marines. Good program, good growth, lots of work. We're actually here in Salt Lake City today doing a call, and we'll be spending time later this week with Sikorsky

Gunnar Cleveland: The Joint Strike Fighter, I think we should expect to see some growth to be relatively flat. We know what Lockheed Martin is saying, that they will build and will support the build. We're ready to support that build rate, but last year it remained below 100. We're hoping to see that it goes above 100, but we have planned for a rate right around 100 in our numbers. Thank you, and thank you to you all for talking about the European Demand for Machine Clothing and what you're saying regarding... Yeah. We've seen Europe being soft. We don't see it becoming softer, but we're keeping our eyes on Europe and the latest expectations for GDP growth there. Are you still on?

Operator: I'll take that. Yeah, thank you, the Thank you. That concludes today's Q&A session. I will now turn the call back over to Denaro Cleveland for closing remarks. Please go ahead.

Gunnar Cleveland: All right. Thank you. And thank you everyone for joining us on the call today. We appreciate your continued interest in Albany International. Thank you, and have a good day.

Operator: This concludes today's conference call. You may all disconnect. © BF-WATCH TV 2021, ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? © The Ultimate Parody Site! ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Music Music Music Music Music Music Music, Good day, and thank you for standing by. Welcome to Albany International's fourth quarter 2023 earnings call. At this time, all participants are in a listen-only mode.

Okay.

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Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your where to place your hand.

John Hobbs: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to John Hobbs, Director of Investor Relations. Please go ahead.

John Hobbs: Thank you, Lisa, and good morning, everyone. Welcome to Albany International's fourth-quarter earnings 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 is a notice regarding our forward-looking statements and the use of certain non-GAAP financial measures and their reconciliation to GAAP. For the purposes of the conference call, those same statements apply to our verbal remarks this morning. Today, we will make statements that are forward-looking and contain a number of risks and uncertainties, which could cause actual results to differ from those expressed or implied. For a full discussion of these risks and uncertainties, please refer to both our earnings release of February 26, as well as our SEC filings, including our 10-K. Now I turn the call over to Gunnar Cleveland, President and Chief Executive Officer, who will provide opening remarks. Gunnar?

Okay.

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Gunnar Cleveland: Thank you, John. Good morning, and welcome everyone. Thank you for joining us for our fourth quarter earnings call. Before we begin this call, I want to take a moment and acknowledge John Hobbs, who has been leading our investor relations functions for the past five years. John has been instrumental in communicating our story to the investment community and has taken the IR function at Albany to the next level. After a long career of nearly three decades in investor relations, John is retiring, and Albany will transition his responsibilities to J.C. Shetland.

Yes.

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Gunnar Cleveland: We wish John and his wife the best in his retirement, and we welcome JC to his new role. Moving on to our 2023 report. I continue to be impressed with our operations and remain confident about the strengths of our company and our long-term growth potential. Technological innovation, material science know-how, operational execution, customer satisfaction, and capital discipline are all key to the long-term success of Albany. I'll provide an overview of 2023's financial performance, and Rob will later discuss our fourth quarter results in detail and provide our outlook for 2025. In 2023, our businesses will remain focused on operational execution and deliver outstanding financial performance. This is a testament to the strong management team at Albany, who have stayed a step ahead of global microeconomic issues and allowed us to deliver our high-quality products on time with excellent financial results.

Okay.

Yes.

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Gunnar Cleveland: We closed the year with consolidated revenue of $1.15 billion, up 11%, primarily driven by 12% top-line growth in our engineered composites business, along with 10% top-line revenue growth in machine clothing, largely resulting from our recent handbuck acquisition. Importantly, we grew adjusted EBITDA to $265 million, up 5% over the prior year. Adjusted EBITDA margins came in just over 23% versus the prior year of 24.5%. The margin compression was primarily driven by growth in sales at Engineered Composites and the acquisition of IMAX.

Yes.

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Gunnar Cleveland: The ad net income for 2023 was $111 million or $3.55 per share, up from $96 million last year or $3.04 per share. The diluted adjusted EPS for 2023 after adjustments primarily driven by expenses related to the Harnbach acquisition was $4.06 versus $3.87 in the prior year. Pre-cash flow for the year increased to $64 million from $32 million. Turning our focus to the segments, our machine clothing business, excluding Heimbarg, continues to be a strong, consistent performer. This year was no different.

Good day, and thank you for standing by welcome to Albany International fourth quarter 2023 earnings call.

At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.

To ask a question to one. Thank you you will need to press star one on your telephone you will then hear an automated message advised in your hand is right.

Withdraw your question. Please press star one again please.

Please be advised that today's conference is being recorded.

I would now like to turn the conference over to your Speaker for today, John Hop Director Investor Relations. Please go ahead.

Thank you Lisa and good morning, everyone welcome to Albany International fourth quarter earnings Conference call.

A minder 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 isn't notice regarding our forward looking statements and the use of certain non-GAAP financial measures and their reconciliation to GAAP for the purposes of the.

Conference call those same statements apply to our verbal remarks. This morning today, we will make statements that are forward looking and contains a number of risks and uncertainties, which could cause actual results to differ from those expressed or implied for a full discussion of these risks and uncertainties. Please refer to both.

Our earnings release of February 26.

As well as our SEC filings, including our 10-K.

Now I'll turn the call over to Glenn our Cleveland, President and Chief Executive Officer, who will provide opening remarks qunar.

Gunnar Cleveland: Integration remains on track, and we expect that it will be accreted on a GAAP basis in 2025. Our machine clothing business is well positioned globally with an increased share of our customers serving the secularly growing packaging and tissue markets, both of which continue to grow for us on a global basis. However, this was offset somewhat by weaker engineered fabrics demand, particularly in Europe.

Thank you John good.

And welcome everyone. Thank you for joining our fourth quarter earnings call.

Before we begin this call I want to take a moment and acknowledge John <unk>, who has been leading our investor relations functions for the past five years.

John has been instrumental in communicating our story to the investment community and has taken the IR function at Albany to the next level.

Gunnar Cleveland: Overall, we saw a positive impact on our bottom line results from both product and geographic mix. Machine Clothing continues to demonstrate world-class execution across its global market. Our engineered composite segment is executing on this long-term growth strategy. The segment reported revenue of $477 million, up 12% versus the prior year, while adjusted EBITDA margins expanded 60 basis points to 19% compared to 2022. Growth was driven by commercial programs, including Boeing 787, and new programs that kicked off in late 2022. ASC LEAP revenues were $175 million, up approximately $50 million year-over-year, in line with our most recent guidance. Turning to U.S. government programs, we made first article delivery of the CH53K app transition in the second quarter of the year, ahead of schedule.

After a long career with nearly three decades.

Investor Relations Don this retiring and they will transition his responsibilities to JC shutdown.

We wish John and his wife, the best in his retirement and we welcome Casey.

His new role.

Moving to our 2023 performance.

I continue to be impressed with our operations and remain confident about the strengths of our company and our long term growth potential technological innovation and material science knowhow operational execution customer satisfaction and capital discipline are all key to the long term success of Alberta.

I will provide an overview of 2020 Three's financial performance, Rob will later discuss our fourth quarter results in detail and provide our outlook for 2024.

In 2023, our businesses remain focused on operational execution and delivered outstanding financial performance. This is a testament to the strong management team at Albany.

Made a step ahead of global macroeconomic issues and allowed us to deliver our high quality products on time with excellent financial results.

We closed the year with consolidated revenue of one point.

$15 billion up 11%, primarily driven by 12.

12% topline growth in our engineered composites business, along with 10% topline revenue growth and machine clothing large fleet, resulting from our recent Heimbach acquisition Importantly, we grew adjusted EBITDA to $265 million up 5% over the prior year.

Gunnar Cleveland: The execution of the AEC operations team was exemplary, and their ability to timely deliver on this program was noted by the Institute. Recurring production revenues on defense programs were up in aggregate year over year, although this growth was masked by lower 2023 non-recurring revenues associated with the standoff of the CH-53K after transition production. These non-recurring efforts were largely completed in the first half of 2020.

The EBITDA margins came in just over 23% versus the prior year or 24, 5%. The margin compression was primarily driven by growth in sales at engineered composites and the acquisition of hybrid.

GAAP net income for 2023 was $111 million or $3 55 per share up from $96 million last year or $3 four.

Gunnar Cleveland: We have a robust business development pipeline and have won significant new business in 2023, which will result in revenues in the short term. Notably, in 2023, we expect significant growth in space programs and other emerging platforms. AEC's consistent ability to deliver a quality product on time to our customers is a significant competitive advantage when competing for new business. Turning to our business strategy, machine clothing is a consumable aftermarket business that performs consistently year in and year out. Albany International Machine Clothing benefits from a longstanding reputation for reliability and technological leadership that our customers value. The business generates strong cash flows and provides an excellent return on capital. The successful integration of Heimark will generate system-wide efficiency and enhance customer service.

Per share.

Diluted adjusted EPS for 2023 after adjustments, primarily driven by expenses related to the <unk> acquisition was $4 six.

Versus $3 87 in the prior year.

Free cash flow for the year increased to $64 million from $32 million.

Turning our focus to the segments, our machine clothing business, excluding hi, Mark.

Currency on a currency neutral basis.

The EBITDA margin was 37%.

The segment finished 2023 very strong completing backlog orders and posting better results than we had anticipated, especially in North America and Asia.

The <unk> acquisition added $51 million to machine clothing stock line for the final four months of 2023 and was modestly dilutive to GAAP earnings. We continue to be pleased with additional time and the expanded presence in both European and Asian markets integration remains on track and we expect.

Gunnar Cleveland: The integration is designed to drive earnings and cash flow growth in the years to come. Engineered composites will continue to be an important source of growth as we focus on building out our business through the disciplined selection of strategic partners and programs with a focus on capital efficiency. From an operations perspective, we will continue to deliver world-class execution and meet our customers' quality and delivery requirements. Our reputation in the marketplace continues to grow, and our business development pipeline will provide us with growth opportunities over the medium term. Our continued investment in proprietary and differentiated technologies will translate into meaningful growth over the long term. Our balance sheet remains very strong, allowing us to pursue those investments that provide the highest risk-adjusted returns to our shareholders.

That it would be accretive on a GAAP basis in 2025.

Our machine clothing business is well positioned globally with an increased share of our customers serving the secular leaf growing packaging and tissue markets, both of which continued to grow for us on a global basis.

This was offset somewhat by weaker engineered fabrics demand, particularly in Europe. Overall, we saw a positive impact to our bottom line results from both product and geographic mix.

Machine clothing continues to demonstrate world class execution across global markets.

Our engineered composites segment is executing on its long term growth strategy.

Segment reported revenue of $477 million up 12% versus the prior year, while adjusted EBITDA margins expanded 60 basis points to 19% compared to 2022 growth was driven by commercial programs, including Boeing 787, and new programs that kicked off in late 2020 to ASC.

Gunnar Cleveland: During 2023, the company executed on the acquisition of Heimbach, invested in organic growth at AEC, continued to invest significantly in R&D, and increased our dividends to shareholders. This disciplined approach to capital management will continue to inform our business decisions. With that, I will hand it over to Rob to provide more details on the quarter and our outlook for 2024.

Lease revenues was $175 million up approximately $15 million year over year in line with our most recent guidance.

Turning to U S government programs, we made first article delivery of the CH 53, K App transition in the second quarter of the year ahead of schedule and execution of the AUC operations team was except blurry and their ability to timely deliver on this program was noted by the industry.

Recurring production revenues on defense programs were up in aggregate year over year. This growth was masked by lower 2023, non recurring revenues associated with the standup of the CH 53, okay.

Production line.

Nonrecurring efforts were largely completed in the first half of 2023.

Aac's consistent ability to deliver a quality product on time to our customers is a significant competitive advantage when competing for new business.

Rob: Additionally, Eibach's stand-alone results were better than expected for the quarter. Corporate expenses came in lower than expected as we were managing controllable expenses. Our favorable effect on Patrick for the quarter is due to the impact of a few discrete items. For the fourth quarter, we reported net sales of $324 million, up 20.4% from the fourth quarter of last year and 19.6% versus the prior year period on a currency-neutral basis. The growth was primarily driven by high volume.

The business generates strong cash flows and provides an excellent return on capital.

Successful integration of buyback will generate systemwide efficiency and enhanced customer service.

Integration is designed to drive earnings and cash flow growth in the years to come.

Engineered composites will continue to be an important source of growth.

As we focus on building out our business by discipline selection of strategic partners on program with a focus on capital efficiency.

From an operations per se perspective.

Rob: Fourth quarter machine clothing net sales, excluding high buck, increased 2.8% on a currency mutual basis versus the fourth quarter of the prior year. Higher sales to the packaging and tissue industries were partially offset by contraction in our other end markets, most notably engineered fabric. In terms of geography, markets in the Americas are stronger year-over-year. Asian markets are slightly positive, while European markets remain soft.

Our continued investment in proprietary and differentiated technologies will translate into meaningful growth over the long term.

Our balance sheet remains very strong, allowing us to pursue those investments that provide the highest risk adjusted returns to our shareholders.

During 2023, the company executed on the acquisition of Heimbach invested in organic growth at AAC.

Rob: Engineered composites net sales of $132 million increased 10.6% on a currency-neutral basis compared to the fourth quarter of 2022. Our growth was driven by strength across our commercial and space programs, partially offset by our defense programs. I would like to highlight that our recurring production revenues on the defense programs increased year-over-year, driven by both CH-53K and JASMINE. During the fourth quarter of last year, there was significant one-time revenue generated by the stand-up of the CH-53K ad transition production line. Fourth quarter gross profit for the company was $120 million, up $23 million or 22.5% from the same period last year. Within machine clothing, excluding lineback, favorable product mix and lower procurement costs drove an increase in growth margins to 51.9%, a 270 basis points versus the same period last year.

We need to invest significantly in R&D and increase our dividends to shareholders. This disciplined approach to capital management, we will continue to inform our business decisions.

With that I will hand, it over to Rob to provide more details on the quarter and our outlook for 2024.

Rob.

Thank you Dan and good morning, everyone I will review our fourth quarter results of 2023, and then provide our outlook for 2024.

During the quarter a number of factors resulted in us delivering a result, well ahead of our earlier expectations.

And machine clothing, we successfully executed on a number of consumer orders, resulting in drawing down our backlog to more normalized levels. We also saw accelerated procurement savings as a result of the team's efforts to optimize our supply chain.

I slowly win from our integration.

Additionally, <unk> standalone results were better than expected for the quarter.

Corporate expenses came in lower than expected as we are managing controllable expenses.

Our favorable effective tax rate for the quarter is due to the impact of a few discrete items.

For the fourth quarter, we reported net sales of $324 million or 24% from the fourth quarter of last year, and 19, 6% versus the prior year period on a currency neutral basis.

Growth was primarily driven by high Mark.

Fourth quarter machine clothing, net sales, excluding <unk> increased two 8% on a currency neutral basis versus the fourth quarter of the prior year.

Rob: While at AEC, growth margins finished with a strong 20%, up 120 basis points versus the same period last year. Note that for the quarter, we recognized a net unfavorable change in the estimated profitability on our long-term contracts of $1.5 million compared to a net unfavorable change of $1.7 million in the fourth quarter of last year. Net R&D expenses were in line with the prior year and represent approximately 2% of our revenue. SG&A expenses for the fourth quarter were largely unchanged on the basis of the prior year.

Higher sales to the packaging and tissue indices were partially offset by contraction in our other end markets, most notably engineered fabrics.

In terms of geography markets in the Americas are stronger year over year Asian markets are slightly positive while European markets remained soft.

Fully offset by our defense programs.

I would like to highlight that our recurring production revenues on the defense programs increased year over year, driven by both CH 53, K and Jasmine.

During the fourth quarter of last year, there was significant onetime revenue generated by the standup of the CH 53, K AD transition production lines.

Rob: The year-over-year growth in total SG&A is due to the addition of high bonds. That net income of several to the company for the quarter was $30.5 million compared to $18.1 million last year. IMBAC results reduced net income by approximately $5 million, largely the result of inventory step-up and initial integration expenses. GATT diluted EPS was $0.97 per share in this quarter versus $0.58 in the same period last year. That's our adjustments primarily related to the Heimbach acquisition as detailed in our non-GATT reconciliation. The adjusted UPS on a diluted basis was $1.22 compared to $0.75 in the same period last year.

Fourth quarter gross profit for the company was $120 million up $23 million or 22, 5% from the same period last year.

Within machine clothing, excluding landmark favorable product mix and lower procurement costs drove an increase in gross margins to 51, 9% up 270 basis points versus the same period last year.

While at AAC gross margin finished with a strong 20% up 120 basis points versus the same period last year.

After the quarter, we recognized a net unfavorable change in the estimated profitability on our long term contracts of $1 5 million compared to a net unfavorable change of $1 7 million.

Fourth quarter of last year.

Net R&D expenses were in line with the prior year and represent approximately 2% of our revenues.

Rob: Please note that, from this call going forward, EPS results will be reported on a diluted basis. Adjusted EBITDA of $75 million for the fourth quarter increased 28% from the prior year period. Machine clothing adjusted EBITDA, excluding Heimbach, increased 12% to $58.6 million. Segment adjusted even-thought margins were 37.5 percent, an 80 basis point improvement from the prior year. Heimbach operations added $3 million of adjusted E

SG&A expenses for the fourth quarter were largely unchanged on the base business from the prior year the year over year growth in total SG&A is due to the addition of Heinbach.

GAAP net income attributable to the company for the quarter was $30 5 million compared to $18 1 million last year.

<unk> results reduced GAAP net income by approximately $5 million largely the result of inventory step up and initial integration expenses.

GAAP diluted EPS was <unk> 97 per share in this quarter versus CPA.

In the same period last year.

After adjustments primarily related to the hand back acquisition as detailed in our non-GAAP reconciliation.

Rob: AEC's adjusted EBITDA was $27.1 million, a 21% improvement over the prior year. Margins at AEC were 20.5% of sales, a 170 basis point improvement over the prior year period. During the fourth quarter, the company generated $39 million of free cash flow, with cash flow from operating activities at $74 million and capital expenditures at $35 million. During the fourth quarter, we paid down debt of over $30 million.

Adjusted EPS on a diluted basis was $1 22 compared to <unk> 75.

In the same period last year. Please.

Please note that from this call going forward EPS results will be reported on a diluted basis.

Adjusted EBITDA of $75 million for the fourth quarter increased 28% from the prior year period.

Machine clothing, adjusted EBITDA, excluding heimbach increased 12% to $58 6 million.

Segment adjusted EBITDA margins were 37, 5%, an 80 basis point improvement from the prior year.

And pack operations added $3 million of adjusted EBITDA.

Adjusted EBITDA was $27 1 million or 21% improvement over the prior year.

Margins at AAC or 25% of sales.

170 basis point improvement over the prior year period.

During the fourth quarter, the company generated $39 million of free cash flow with cash flow from operations operating activities at 74 million and capital expenditures at 35 million.

Rob: Heimbach added $36 million to our top line for the quarter and was modestly diluted to our cap earnings. I'm impressed with their people and technology. Our integration efforts are on track, and I have confidence in our ability to meet the financial targets outlined at the time of the acquisition announcement. Turning to our outlook for 2024, we are forecasting another strong year with double-digit top-line growth and continued attractive even-down margins. Moving toward the machine clothing outlook, we expect the business to perform well in the coming year. However, we anticipate markets in Europe will remain soft by historic standards.

Over the fourth quarter, we paid down debt of over $30 million.

Our balance sheet remains strong with a cash balance of $173 million and over $350 million of borrowing capacity under our committed credit facility.

Our net leverage at the end of the year came in at approximately one times, giving us financial flexibility to execute our clients.

Finally, I want to touch upon heimbach.

<unk> added $36 million to our top line for the quarter and was modestly dilutive to our GAAP earnings.

Crestwood their people and technology.

Our integration efforts are on track and have confidence in our ability to meet the financial targets outlined at the time of the acquisition announcement.

Turning to our outlook on slide 24, we are forecasting another strong year with double digit top line growth and continued attractive EBITDA margin.

Moving to our machine clothing outlook, we would expect the business to perform well in the coming year, we anticipate markets in Europe remained soft by historic standards. However Asian markets are showing early indications of improvement from a soft patch. They saw in the first half of 2023 markets in the Americas remain healthy.

Rob: However, Asian markets are showing early indications of improvement from the soft patch they saw in the first half of 2023, while markets in the Americas remain healthy. For 2024, the Heimbach acquisition, as expected, will meaningfully add to our revenue outlook and will be diluted in our GAAP results. The low-end of our machine faulting guide assumes weaker-than-expected global market conditions and corresponding lower absorption rates. The top end of our range assumes robust markets in the Americas, continued recovery in Asia, and improvement in Europe. We expect revenues of $760 to $790 million and adjusted EBITDA of $230 to $250 million. Turning to AEC, we are on high-demand programs, and most are continuing to ramp up sustained production levels. Going forward, we expect our long-term growth to continue to be driven by inclusive production across commercial, defense, and space programs.

For 224, I'll hand back acquisition as expected will meaningfully add to our revenue outlook and will be dilutive to our GAAP results.

The low end of our machine clothing guide assumes weaker than expected global market conditions and corresponding lower absorption.

The top end of our range assumes robust markets in the Americas continued recovery in Asia and improvement in Europe.

We expect revenues of $760 million to $790 million and adjusted EBITDA of $230 million to $260 million.

Turning to AC we are on high demand programs and most are continuing to ramp the sustained production levels.

Going forward, we expect our long term growth continued to be driven by increase in production across commercial defense and space programs.

Rob: We have a strong backlog, and we continue to see positive results from our ongoing business development efforts. We have one new business that we expect will add revenues in the second half of the year and set us up for continued growth into 2025. As we think about our guide, the long of our guide beyond normal variability takes into account the potential for lower than planned component demand from our customer or delays in the reward of new programs reflected in our plan. The high end of the range takes into account the potential for an earlier than anticipated start on new winds and higher than expected lead production.

We have a strong backlog and we continue to see positive results from our ongoing business development efforts.

We have won new business that we expect will add revenues in the second half of the year and set us up for continued growth into 2025.

As we think about our guide the low end of our guide would be a normal variability takes into account the potential for lower than planned component demand from our customer or delays in the War award new programs reflected in our plan.

The high end of the range takes into account the potential for earlier than anticipated start on new wins and a higher than expected a leap production.

Rob: Overall, for the segment, we are providing an initial revenue guide of $500 to $540 million. From a profitability perspective, we expect to see a positive shift in product mix and a modest improvement in margin. Accordingly, we are guiding our adjusted EBITDA at $97,207,000. I would like to bring your attention to some HUD headwinds impacting our 2024 adjusted EPS. We will see higher pension expense in our base business due to the expiration of prior accounting treatment relating to the amortization of prior service costs. This will result in a non-cash expense of approximately $4 million, or $0.09 per share. Purchase accounting adjustments from the IBOC transactions will increase depreciation amortization by $2.7 million, or approximately $0.08 per share. And finally, our previously placed interest rate swap arrangement will mature at the end of October 2024. We are exploring various alternatives to minimize this impact.

<unk>, we are guiding our adjusted EBITDA at $97 million to 107 million.

I would like to bring your attention to some highest headwinds impacting our 2024 adjusted EPS.

We will see higher pension expense than our base business due to the exploration of prior accounting treatment relating to the amortization of prior service cost.

This will result in a noncash expense of approximately $4 million or <unk> <unk> per share.

Purchase accounting adjustments from the <unk> transaction will increase depreciation and amortization by $2 7 million or approximately <unk> <unk> per share.

And finally, our previously placed interest rate swap arrangement will mature at the end of October 2024.

We are exploring various alternatives to minimize the impact for.

For guidance purposes, we have estimated the full impact to our net interest cost at approximately $2 6 million or <unk> <unk> per share assuming the current interest rate levels.

Together these items represent a 23 headwinds to our EPS guide for 2024.

These impacts excluding interest are noncash.

At a consolidated level or slightly for guidance is as follows.

Revenue of 1.2 dollars 6 billion to 133 billion adjusted EBITDA between 260 and $290 million.

Adjusted EPS between $3, 55, and $4 <unk> per share.

Depreciation and amortization between 85 to 95 million.

The income tax rate of 29% to 31%.

Capital expenditures in the range of 90 million to $95 million.

Rob: Our goal with this guidance is to provide investors with a forecast that equally balances the risks and opportunities we see in the coming year. Now, I would like to open the call for questions. Operator? Thank you.

Our goal with this guidance is to provide investors with a forecast was equally balances the risk and opportunities we see in the coming year.

Now I would like to open the call for questions operator.

Thank you.

<unk>.

Q4 2023 Albany International Corp Earnings Call

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