Q1 2024 Albany International Corp Earnings Call
Operator: Good day, and thank you for standing by. Welcome to the Albany International First Quarter 2024 Earnings Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, J.C. Tetnani, VP of Investment Relations and Treasurer.
Good day and thank you for standing by welcome to the Albany International first quarter 2024 earnings call. At this time, all participants are in a listen only mode.
The speaker's presentation there'll be a question and answer session.
Ask the 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 grace to withdraw your question. Please press star one again.
Please be advised that today's conference is being recorded I would now like.
I'll hand, it off.
Conference over to your first speaker today, J C <unk> VP of Investor Relations and Treasurer.
J.C. Tetnani: Thank you, Operator, and good morning, everyone. Welcome to Albany International's first quarter 2024 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 together. For the purposes of this conference call, those same statements apply to our verbal remarks this morning.
J C: Thank you operator, and good morning, everyone welcome to Albany International first quarter 2024 earnings Conference call.
J C: As a reminder for those listening on the call. Please refer to our press release issued last night detailing our quarterly financial results.
J C: Contained in the text of the release is a notice regarding our forward looking statements and the use of certain non-GAAP financial measures.
J C: And their reconciliation to GAAP for.
J C: For the purposes of this conference call those same statements apply drove global remarks. This morning.
J.C. Tetnani: 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 April 29, 2024, as well as our SEC filings, including our 10K. Now I will turn the call over to Gunnar Kleveland, our President and CEO, who will provide opening remarks. Gunnar?
J C: Today, we will make statements that are forward.
J C: Forward looking and contains a number of risks and uncertainties.
J C: Which could cause actual results to differ from those expressed or implied.
J C: For a full discussion of these risks and uncertainties. Please refer to both our earnings release of ambulatory $90 24.
J C: As well as our SEC filings, including our 10 gig.
J C: Now I will turn the call over to Bernard Cleveland, Our President and CEO, who will provide opening remarks.
Gunnar Kleveland: Thank you, JC. Good morning, and welcome everyone.
Gunnar Kleveland: Thank you Jamie good morning, and welcome everyone. Thank you for joining our first quarter earnings call.
Gunnar Kleveland: Thank you for joining us for our first quarter earnings. I'll provide an overview of our business performance, and Rob will later discuss our financial results in detail. We had another good quarter as our businesses delivered solid results and are executing on their plans. Machine clothing grew year over year, primarily driven by our Heimbach acquisition, offset by lower organic demand, primarily in Europe. North America remains strong, and our global order backlog has improved from the beginning of the year, which gives us confidence in our full year guide. Integration at Heimbach is making excellent progress. We implemented a two-brand strategy which has been well-received by the market.
Gunnar Kleveland: I will provide an overview of our business performance and Rob will later discuss our financial results in detail.
Gunnar Kleveland: We had another good quarter as our businesses delivered solid results and are executing to their plants.
Gunnar Kleveland: Machine clothing grew year over year, primarily driven by our Heinbach acquisition offset by lower organic demand primarily in Europe.
Gunnar Kleveland: North America remains strong and our global order backlog has improved from the beginning of the year, which provides us confidence in our full year guide.
Gunnar Kleveland: Integration at Heimbach is making excellent progress.
Gunnar Kleveland: We implemented a two brand strategy, which has been well received by the market procurement and supply chain continued to see savings and we have been integrating functions across both our organizations.
Gunnar Kleveland: Procurement and supply chain continue to see savings, and we have been integrating functions across both our organizations. We continuously assess our global manufacturing capacity and footprint, and recently, we announced that we are closing our South Korea facility and transferring capacity to other sites. We also sold a non-manufacturing location in Sweden, further optimizing our footprint.
Gunnar Kleveland: We continuously assess our global manufacturing capacity and footprint and recently, we announced that we are closing, our south Korea facility and transferring capacity to other sites.
Gunnar Kleveland: We also sold a non manufacturing location in Sweden further optimizing our footprint.
Gunnar Kleveland: We'll continue to evaluate other opportunities as the year progresses, with integration actions occurring in late 2024 and into 2025. We expect meaningful margin expansion as the integration progresses. Moving to our Engineered Composites segment, we're pleased to see continued growth on our programs, especially on the commercial side, including space and other emerging platforms. On the defense side, for the year, we see growth on our CH-53K and JASM platforms, offset by relative weakness on our Joint Strike Fighter program.
Gunnar Kleveland: We will continue to evaluate other opportunities as the year progresses with the integration actions occurring in late 2024 and into 2025.
Gunnar Kleveland: We expect meaningful margin expansion as the integration progresses.
Gunnar Kleveland: Moving to our engineered composite segment.
Gunnar Kleveland: We're pleased to see continued ramp up on our programs, especially on the commercial side, including space on other emerging platforms.
Gunnar Kleveland: On the defense side for the year, we see growth on our CH 53, K and jassem platforms offset by relative weakness on our joint strike Fighter program.
Gunnar Kleveland: Overall, we are reporting growth of over 10% in revenue versus the prior year on a constant currency basis. Additionally, our profitability continues to improve with adjusted EBITDA margins of 19.4%, up 120 basis points versus the prior year.
Gunnar Kleveland: Overall, we are reporting growth of over 10% in revenue versus the prior year on a constant currency basis.
Gunnar Kleveland: Additionally, our profitability continues to improve with adjusted EBITA margins of 19, 4% up 120 basis points versus the prior year.
Gunnar Kleveland: This reflects our long-term strategy of winning newer programs with higher profit. Turning to the LEAP program, we've been working closely with Zafran to set the 2024 production plan in light of the situation at Boeing. We anticipate LEAP revenue to be relatively flat with the prior year.
Gunnar Kleveland: This reflects our long term strategy of winning newer programs with higher profit margins.
Gunnar Kleveland: Turning to the leap program, we've been working closely with our from to set the 2024 production plan in light of the situation at Boeing we anticipate leap revenue to be relatively flat with the prior year.
Gunnar Kleveland: As a reminder, the LEAP engine is used on both Boeing and Airbus aircraft, both of whom have multi-year backlogs. Finally, for AEC, we continue to develop a healthy business development pipeline with continued wins across various platforms. In a quarter, Sikorsky awarded Albany a long-term agreement for future CH-53K lots on all our legacy content, similar in duration to the previously announced F-Transition LTA. This represents the largest contract award in AEC history next to our LEAP program.
Gunnar Kleveland: As a reminder, the leap engine is used on both Boeing and Airbus aircrafts, both of whom.
Gunnar Kleveland: Have multiyear backlogs.
Gunnar Kleveland: Finally for <unk> EC we continued to develop a healthy business development pipeline with continued wins across the various platforms in the quarter Sikorsky awarded Albany, a long term agreement for future CH 50 <unk>.
Gunnar Kleveland: All our legacy content similar in duration to the previously announced app transition to LTA.
Gunnar Kleveland: This represents the largest contract award in <unk> history next to our lead program.
Gunnar Kleveland: Given that our expertise in research and technology is critical to the success of Albany, we have created a new role of Senior Vice President and Chief Technology Officer of Albany International reporting directly to me. We have promoted Rob Hansen from his prior role as Senior VP of Research and Development at Machine Coding to this role. By aligning closely with the leadership team, we have the opportunity to leverage our unique competitive technological capabilities to accelerate impactful innovation across our business. And with that, I'll hand it over to Rob to provide more details on the quarter.
Gunnar Kleveland: Given that our expertise in research and technology is critical to the success of Albany.
Gunnar Kleveland: <unk>, new role of senior Vice President and Chief Technology Officer of Albany International reporting directly to me.
Gunnar Kleveland: We have promoted Rob Hansen from his prior role as senior VP of research and development at machine clothing to this role.
Gunnar Kleveland: By aligning closely with the leadership team, we have the opportunity to leverage our unique competitive technological capabilities to accelerate impactful innovation across our businesses.
Gunnar Kleveland: And with that I'll hand, it over to Rob to provide more details on the quarter.
Gunnar Kleveland: Rob.
Rob: Thank you, Gunnar, and good morning, everyone. I will review our first quarter results for 2024 and then provide our outlook for the balance of the year. During the quarter, our businesses executed on their plans. Consolidated net sales came in at $313 million, up 16.4% from the first quarter of last year. The growth was driven by a combination of the contribution from Heimbach and organic growth at engineered composites. Machine Clothing Net Sales increased 20.9% versus the first quarter of the prior year driven by Heimbach, but it was partially offset by a 3.8% decline in organic cells, which was largely concentrated in publication grades. Market conditions remain largely unchanged, with North American markets remaining strong, European markets continuing to be soft, and Asian markets showing signs of slow recovery.
Unknown Executive: Thank you <unk> and good morning, everyone.
Unknown Executive: I will review our first quarter results of 2024, and then provide our outlook for the balance of the year.
Unknown Executive: During the quarter, our business has executed to their plans.
Unknown Executive: Consolidated net sales came in at $313 million.
Unknown Executive: Up 16, 4% from the first quarter of last year.
Unknown Executive: <unk> was driven by a combination of the contribution from ironbark and organic growth add engineered composites.
Gunnar Kleveland: Machine clothing that sales increased 29% versus the first quarter over the prior year driven by Heinbach excuse me.
Gunnar Kleveland: Partially offset by a three 8% decline in organic sales, which was largely concentrated in publication grades.
Gunnar Kleveland: Market conditions remain largely unchanged with North American markets remaining strong European markets, continuing to be soft and agent market showing signs of slow recovery.
Rob: AEC sales of $128 million increased 10.6% from the first quarter of 2023. Our growth is driven by our commercial programs, especially on our 787 space plane and emerging platforms. This growth was slightly offset by our defense program, with much of the first quarter drop in defense related to the rolling off of one-time revenue related to standing up the CH53K AFT transition production line in 2023. However, we could see a continued ramp-up of recurring CH53K production for the balance of 2024.
Gunnar Kleveland: AUC sales of $128 million increased 10, 6% from the first quarter of 2023, our growth was driven by our commercial programs, especially on our 787 space and emerging platforms.
Gunnar Kleveland: This growth was slightly offset by our defense programs most of the first quarter drop in defense related to the rolling off of one time revenue related to standing up the CH 53, K F transition production line in 2023.
Gunnar Kleveland: However, we can see continued ramp up.
Gunnar Kleveland: Recurring CH 53, K production for the balance of 2024.
Rob: Consolidated gross profit was 109 million, up 9 million or 9.4% from the same period last year. Machine clothing gross margin decreased from 50.8% in the first quarter of 2023 to 45.7% in 2024, with a reduction primarily driven by the inclusion of Heimbach. Excluding Hibach, machine clothing gross margins increased to 52.1%, reflecting favorable mix and cost control. AEC gross margins also grew, with margins at 18.8%, up 30 basis points versus the same period last year. This reflects our strategy of pursuing higher-margin programs and the resulting improvement in product mix.
Gunnar Kleveland: Consolidated gross profit was $109 million of $9 million or nine 4% from the same period last year.
Gunnar Kleveland: <unk> clothing gross margin decreased from 58% in the first quarter of 2023.
Gunnar Kleveland: To 45, 7% in 2024.
Gunnar Kleveland: With the reduction primarily driven by the inclusion of Hi, Bob.
Gunnar Kleveland: Excluding high Bock.
Gunnar Kleveland: <unk> clothing gross margins increased to 52, 1%, reflecting favorable mix and cost controls.
Gunnar Kleveland: Gross margin also grew with margins at 18, 8% up 30 basis points versus the same period last year. This reflects our strategy of pursuing higher margin programs and the resulting improvement in product mix.
Rob: Note that for the quarter, we recognize a net unfavorable change in the estimated profitability on our long-term contract of $0.9 million, in line with a net unfavorable change of $0.7 million in the first quarter of last year. Net R&D expenses were generally in line with the prior year and represent approximately 4% of our revenue. This represents our continued investment in research and development to further differentiate our product.
Gunnar Kleveland: Note that for the quarter, we recognized a net unfavorable change in the estimated profitability on our long term contracts.
Gunnar Kleveland: $9 million in line with our net unfavorable change of <unk> 7 million in the first quarter of last year.
Gunnar Kleveland: Net R&D expenses were generally in line with the prior year and represent approximately 4% of our revenues.
Gunnar Kleveland: This represents our continued investment in research and development to further differentiate our products.
Rob: SG&A expenses for the quarter increased by 13.1%, but this was due to the Heimbach acquisition. As a percentage of revenue, SG&A decreased from 18% to 17.5% as we benefit from increased scale. Corporate expenses increased by half a million, primarily due to acquisition and integration related expenses.
Gunnar Kleveland: SG&A expenses for the quarter increased by 13, 1%, but this was due to their heinbach acquisition as a percentage of revenue SG&A decreased from 18% to 17, 5% as we benefit from increased scale.
Gunnar Kleveland: Corporate expenses increased a half a million dollars, primarily due to the acquisition and integration related expenses.
Rob: However, adjusted corporate expenses decreased by $1.5 million versus the prior year. Our effective tax rate for the quarter was 29.2% versus 28.2% in the prior year and generally in line with our long-term guidance of 30%. Gatinet income attributable to the company for the quarter was $27.3 million compared to $26.9 million last year. GAAP diluted EPS was $0.87 per share in this quarter versus $0.86 in the same period last year. After adjustments primarily related to the Heimbach acquisition, as detailed in our non-GAAP reconciliation, the adjusted EPS on a diluted basis was $0.90 compared to $0.91 in the same period last year.
Gunnar Kleveland: However, adjusted corporate expenses decreased by $1 $5 million versus the prior year.
Gunnar Kleveland: Our effective tax rate for the quarter was 29, 2% versus 28, 2% in the prior year and generally in line with our long term guide of 30%.
Gunnar Kleveland: GAAP net income attributable to the company for the quarter was $27 3 million compared to $26 9 million last year.
Gunnar Kleveland: GAAP diluted EPS was <unk> 87 per share in this quarter versus 86% in the same period last year after adjustments primarily related to the heimbach acquisition as detailed in our non-GAAP reconciliation to adjusted EPS on a diluted basis was <unk> 90.
Gunnar Kleveland: Compared to 91 in the same period last year.
Rob: Consolidated adjusted EBITDA of $65 million for the first quarter increased 8% from the prior year period. Machine closing adjusted EBITDA, including Heimbach, was at $55.5 million and was generally in line with the prior year at $55.7 million. Adjusted EBITDA margins were 30% versus 36.4% the prior year, with a decrease driven by the inclusion of Heimbach. AEC's adjusted EBITDA was $24.8 million, a 17.9% improvement over the prior year. Adjusted margins at AEC were 19.4% of sales, a 120 basis point improvement over the prior year period.
Gunnar Kleveland: Consolidated adjusted EBITDA of $65 million for the first quarter increased 8% from the prior year period.
Gunnar Kleveland: Machine clothing, adjusted EBITDA, including Heinbach was at $55 5 million and was generally in line with the prior year at $55 7 million adjusted EBITDA margins were 30% versus 36, 4% the prior year with the decrease driven by the inclusion of Heimbach.
Gunnar Kleveland: AAC adjusted EBITDA was $24 8 million or 17, 9% improvement over the prior year adjusted.
Gunnar Kleveland: Adjusted margins at AUC were 19, 4% of sales a 120 basis point improvement over the prior year period.
Gunnar Kleveland: During the first quarter free cash flow was a use of $17 million with positive operating cash flow of $10 million.
Gunnar Kleveland: Offset by capital expenditures of 27 million, we further strengthened our balance sheet and pay down over $17 million of debt and are focused on repatriating, our non U S cash to help minimize our outstanding debt.
Rob: During the first quarter, free cash flow was a use of $17 million, with positive operating cash flow of $10 million, offset by capital expenditures of $27 million. We further strengthened our balance sheet and paid down over $17 million of debt and are focused on repatriating our non-U.S. cash to help minimize our outstanding debt. Our balance sheet remains strong, with a cash balance of over $125 million and over $370 million of borrowing capacity under our committed credit facility.
Gunnar Kleveland: Our balance sheet remains strong with a cash balance of over $125 million and over $370 million of borrowing capacity under our committed credit facility. Our net leverage at the end of the quarter was one two times.
Gunnar Kleveland: Turning to our outlook for the balance of 2024, we are reaffirming our guide for the year. Our Q1 performance was in line with our plan and we are confident that we will meet our full year guide.
Rob: Our net leverage at the end of the quarter was 1.2 times. Turning to our outlook for the balance of 2024, we are reaffirming our guide for the year. Our Q1 performance was in line with our plan, and we are confident that we will meet our full year guidance. Now, I'd like to turn the call over to questions. Operator? Thank you.
Speaker Change: Now I'd like to turn the call over for questions operator.
Speaker Change: Thank you at this time, we will conduct a question and answer session.
Speaker Change: Reminder, to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
Operator: Thank you. At this time, we'll conduct the question and answer session. As a reminder, to ask a question, you'll need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A list. Our first question comes from the line of Peter Arment of Baird. Your line is now open.
Speaker Change: Okay.
Speaker Change: Our first question comes from the line of Peter Arment of Baird. Your line is now open.
Unknown Executive: Hey, Thanks, good morning.
Unknown Executive: Robert J C.
Unknown Executive: Good morning, Pete.
Unknown Executive: I wanted to ask a question on maybe you can level set us on kind of the leap program.
Unknown Executive: I know you've got a 2026 target out there for revenues just how do we think about kind of where you are today and how you see that transitioning.
Unknown Executive: Hey, thanks. Good morning, Gunnar, Rob, and J.C.
Unknown Executive: Yes.
Speaker Change: I think it's a good question.
Gunnar Kleveland: I wanted to ask a question on maybe you could level set us on, you know, kind of the LEAP program. You know, I know you've got a 2026 target out there for revenues. But just how do we think about, you know, kind of where you are today and how you see that transition?
Speaker Change: But I also think that as we're looking through 'twenty four.
Speaker Change: As a flat year going into 'twenty five 'twenty six.
Speaker Change: Boeing Boeing will recapture and continue to grow.
Speaker Change: And if you look at the whole portfolio.
Speaker Change: Peter.
Gunnar Kleveland: I think it's a good question, but I also think that as we're looking through 2024, as a flat year going into 2025 and 2026, Boeing will recapture and continue to grow. And if you look at the whole portfolio, Peter, I still see no challenges with meeting our 26 goals.
Speaker Change: I see still no challenges meeting our 26 call.
Speaker Change: Very helpful. And then just on EMC I guess it sounds like the integration of <unk> on very very well, but you talked a little bit about footprint consolidation South Korea, Sweden.
Speaker Change: Is there a is there a number in mind I mean, you have I think prior to maybe the top three announcement, you had 23 plants and R&D centers.
Unknown Executive: All right, very helpful. And then just on MC, I guess it sounds like the integration of Hombak is going very, very well.
Speaker Change: Whats, what's optimal for the AMC business.
Speaker Change: Yeah I think.
Gunnar Kleveland: But you talked a little bit about, you know, footprint consolidation in South Korea and Sweden. Is there a number in mind? I mean, prior to maybe the South Korea announcement, you had 23 plants and R&D centers. So what's optimal for the MC business?
Speaker Change: We look at the <unk>.
Speaker Change: Whole all business.
Speaker Change: And the South Korea business was.
Speaker Change: Our Albany business model behind bulk business sorry.
Speaker Change: When we look at our total footprint and where our customers are we will make decisions based on that and.
Gunnar Kleveland: Yeah, I think, as we look at the whole business, and the South Korea business was an Albany business, not a Heimbach business. So when we look at our total footprint and where our customers are, we will make decisions based on that. And, and I'm not going to go into details about what we're going to do, but we will continue to evaluate the situation throughout the year and continue to take actions that optimize our footprint and our ability to support our customers. Okay, just one.
Speaker Change: And I'm not going to go into details for what we're going to do.
Speaker Change: But we will continue to evaluate the situation.
Speaker Change: Throughout the year and continue to take actions that optimizes our footprint.
Speaker Change: Our ability to support our customers.
Speaker Change: Okay, and just one last one Rob.
Speaker Change: And that publication grades was weak.
Unknown Executive: If I remember correctly that was still kind of overall mix was like kind of in the teens as a percentage is that is that still correct.
Unknown Executive: Okay, and just one last one. Rob, you mentioned that publication grades were weak. If I remember correctly, that was still kind of an overall mix was kind of in the teens as a percentage.
Unknown Executive: Yes. It is.
Speaker Change: Okay, great I'll jump back in queue. Thanks.
Unknown Executive: Alright, Thank you Peter.
Speaker Change: Thank you Amit for next question.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Michael <unk> of <unk> Securities. Your line is now open.
Rob: Is that still correct? Ah, yes it is. Okay, great. I'll jump back in queue. Thanks. Great. Thank you, Peter. Thank you.
Michael: Hey, good morning, guys. Thanks for taking the questions here.
Michael: Qunar, Rob maybe maybe just to go back to Peter's first line of questioning can you kind of just dissect the.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Michael Ciarmoli of Trust Securities. Your line is now open. Hey, good morning, guys.
Michael: You can see growth this year at the midpoint.
Michael: And I think you already had.
Michael: Flat, so I guess that program flat I guess, the CH 53 K on the.
Michael Frank Ciarmoli: Hey, good morning, guys. Thanks for taking the questions here.
Gunnar Kleveland: Gunnar, Rob, maybe just to go back to Peter's first line of questioning, can you kind of just dissect the AEC growth this year at the midpoint? And I think you already had this being flat. So I guess that program's flat; I guess the CH-53K on the kind of one time down F-35 under pressure. Can you give us maybe some of the buckets that are driving growth? Maybe, you know, talk to the Gen Xers, see if there's any progress with the 9X or what's really anchoring that.
Michael: Kind of one time down F 35 under pressure can you give us maybe some of the buckets that are driving growth maybe talk to the Gen X talk.
Michael: There is any progress with the Nymex or whats really kind of anchoring that.
Michael: That growth at the midpoint of the guidance this year.
Michael: Okay.
Michael: Yes.
Speaker Change: We really see most of the growth this year coming from from new.
Gunnar Kleveland: We really see most of the growth this year coming from new wins and new programs. Space is a significant growth area for us. But when you look at the CH53K, there is growth there throughout the year, even though we don't have the NRE. I think JSF will also be flat ish together with the Leap. So, I still have no full confidence that the other programs that we are growing on the military side, JASM, are a strong growth for us. But our new wins and additional wins will give us confidence in the growth rate.
Speaker Change: <unk> wins and new programs.
Speaker Change: Space is a significant.
Speaker Change: Growth area for us.
Speaker Change: <unk>.
Speaker Change: But when you look at the CH 53, K. There is there is growth there throughout the year, even though we don't have the Ari.
Speaker Change: I think J S F.
Speaker Change: Also be.
Speaker Change: Flattish together with the.
Speaker Change: Leap so.
Speaker Change: But I still have no full confidence that the other programs that we are.
Speaker Change: Growing on the military side <unk> is a strong growth for us.
Speaker Change: But our new wins and additional wins.
Speaker Change: Gives us confidence on the growth rate.
Michael Frank Ciarmoli: Okay, got it. And then just, I guess, shifting to machine clothing, organically down 4% in the quarter, Europe weak, but I think, if I heard you correctly, you said the backlog was up and you've got confidence there. Can you maybe just give us what you're seeing kind of geographically and what's sort of driving some of that, I guess, positive book to bill and order activity?
Speaker Change: Okay got it.
Speaker Change: And then.
Speaker Change: Just I guess shifting to.
Speaker Change: Machine clothing.
Speaker Change: Yes.
Speaker Change: Organically down 4% in the quarter Europe weak, but I think if I heard you correct you said the backlog was up.
Speaker Change: And you've got confidence there can you maybe just give us what you're seeing kind of geographically and what's sort of driving.
Speaker Change: Some of that I guess positive book to Bill in order activity.
Gunnar Kleveland: Now, the macro, you know, we had a very strong fourth quarter on machine clothing, and coming into the first quarter, we kind of expected it to be a little lighter. We saw that, but as we come to the end of the quarter, our backlog is going in line with our expectations.
Speaker Change: Yes, the macro we had a very strong fourth quarter.
Speaker Change: Machine clothing, and coming into first quarter, we kind of expect that to be a little lighter we saw that but but as we come to the end of the quarter. Our backlog is growing in line with our expectations.
Gunnar Kleveland: North America is very strong. We see some recovery in Asia, and Europe remains very soft. Some of the macro indications, some of our end customers are seeing signs of recovery around the globe. I think Europe will probably have soft through the year, but it will probably be offset by the U.S., in particular and the nation.
Speaker Change: North America is very strong.
Speaker Change: We see some recovery.
Speaker Change: In Asia.
Speaker Change: <unk> and <unk>.
Speaker Change: Europe Europe remains very soft.
Speaker Change: Some of the macro indications some of our.
Speaker Change: And customers are seeing signs of.
Speaker Change: Recovery around the Globe I think Europe will probably have soft through the year.
Speaker Change: But.
Speaker Change: Offset by the U S in particular and validation.
Michael Frank Ciarmoli: Got it. Last one for me. I think you talked about the two-brand strategy with Heimbach. Can you maybe just elaborate on what exactly you're doing there and maybe give us some details, whether it's by product offerings, by pricing, and how you expect that to play out?
Speaker Change: Got it.
Speaker Change: Last one for me I think you talked about the with <unk> Hi.
Speaker Change: Hi, Buck the two brand strategy can you maybe just elaborate what exactly youre doing there and maybe give us give us some detail whether it's by product offerings by pricing or and how that how you expect that to play out.
Gunnar Kleveland: And it's exactly that, Michael. We're going in with the two brands that our customers are used to, differentiated technology between the two businesses. And in some paper machines, for example, we can come in with forming, pressing, drying, and other belts, supporting belts from the two companies and really complement the entire machine. So this is working. I know that the company, many years ago, had done integrations before and not used the two-brand strategy, and it wasn't very successful. So, so far, I would say that we're very positive about this approach, and our customers are staying with us.
Speaker Change: And it's exactly that Michael we're going in with the two brands that our customers are used to we have.
Speaker Change: Differentiated technology between the two businesses and in some and in some.
Speaker Change: Paper machines for example, we have.
Speaker Change: We can we can come in with with forming pressing.
Speaker Change: Drying and other other belt supporting belt from the two companies and really complement the entire entire machine. So.
Speaker Change: This is working I know that the company many years ago I've done.
Speaker Change: Integrations before and not use the two brand strategy and it wasn't very successful. So so far I would say that we're very positive on this approach and our customers are staying with us.
Michael Frank Ciarmoli: Got it. All right.
Speaker Change: Got it alright helpful. Thanks, guys I'll jump back in the queue.
Operator: Helpful. Thanks, guys. I'll come back in the queue. Thank you. Thank you. Thank you, Michael.
Speaker Change: Thank you. Thank you. Thank you Michael.
Speaker Change: Thank you Omar for next question.
Speaker Change: Our next question comes from the line of Jordan lineup of Bank of America. Your line is now open.
Operator: Thank you. One moment for the next question. Our next question comes from the line of Jordan Lyonnais of Bank of America. Your line is now open.
Jordan: Hey, good morning, Thanks for taking the call.
Jordan: Hi, Good morning could you guys be able to quantify.
Jordan: How many blades and excess inventory for so from GE.
Jordan: GE CFM overall, and what visibility you guys have into those.
Jordan J Lyonnais: Hey, good morning. Thanks for taking the call. Morning. Would you guys be able to quantify how many blades are in excess inventory for Safran, GE, and CFM overall, and what visibility you guys have into those excess inventory levels?
Jordan: Those excess inventory levels.
Jordan: Yes.
Speaker Change: We do not have.
Speaker Change: Insight into what our customer have an.
Speaker Change: Inventory.
Speaker Change: We have a plan, but like I said earlier with a frown on what.
Gunnar Kleveland: Yeah, we do not have insight into what our customers have in inventory. We we we have a plan, like I stated earlier with Saffron, on what we're building to and we're building that being being that the growth of the engines is 10-15% this year and we will stay at a flat level. I would venture to guess that the inventories are going to be smaller, but I don't know. I don't know what it is.
Speaker Change: We are building two and we're building building that being being that the.
Speaker Change: Sure.
Speaker Change: The growth of the <unk>.
Speaker Change: Engines are 10% to 15%.
Speaker Change: This year and we will stay at a flat level.
Speaker Change: I would.
Speaker Change: Venture to guess that.
Speaker Change: Inventories are going to be smaller, but I don't know I don't know what it is.
Jordan J Lyonnais: I expect us to continue to grow next year but to be flat this year.
Speaker Change: <unk> continued to grow next year, but flat this year.
Gunnar Kleveland: Okay, and then just to follow up too, so on the fence about the F-35 and the JASM missiles, the cuts that came in with the presidential budget request, is there any concern from your end if JASM was cut almost? Forty-five percent, but that's going to be one of your growth pieces for defense.
Speaker Change: Got it Okay, and then just a follow up too so on the fence.
Speaker Change: Sure.
Speaker Change: <unk> 35, and then jazz missiles the cuts that came in with the presidential budget request is there any concern.
Speaker Change: From year end.
Speaker Change: Jasmine Lescott.
Speaker Change: Almost.
Speaker Change: 45%, but that's going to be one of your growth pieces sort of events.
Gunnar Kleveland: So, what we're seeing right now is significant growth from where we were last year and the year before. We did see the reductions. That has not been in the presidential budget. That has not been... Translated to orders to us, but the growth this year and into next year is quite significant.
Speaker Change: So what we're seeing right now is significant growth from where we were last year on the year before.
Speaker Change: The.
Speaker Change: We did see the reductions that as an option.
Speaker Change: And the presidential budget that has not been.
Speaker Change: Translated to orders to us.
Speaker Change: But.
Speaker Change: The growth the growth in this year and into next year is quite significant.
Jordan J Lyonnais: Got it. Thank you. Please allow one moment for our next question.
Speaker Change: Got it thank you.
Speaker Change: Thank you Juan for next question.
Speaker Change: Yeah.
Operator: Our next question comes from the line of Gautam Khanna of TD Cowen. Your line is now open.
Speaker Change: Our next question comes from the line of Guam Kana of TD Cowen. Your line is now open.
Jack R. Ayers: Hey guys, good morning. This is Jack on for Gotham. Nice results here. Hey, Rob.
Guam Kana: Hey, guys. Good morning, this is Jack on for Jonathan.
Jack: Nice results here.
Speaker Change: Hey, Rob.
Rob: Quick question just on AAC and, you know, totally understand the dynamics with LEAP kind of flat this year. GE and Safran are both, you know, talking about LEAP up 10 to 15%. And, you know, really the rationale for my question is, you know, for you guys, it's a cost plus contract. And I know you guys don't have great visibility into, you know, sort of channel inventories, but how should we think about that moving forward, taking into account that it is cost plus?
Guam Kana: Quick quick question just on H B.
Guam Kana: And totally understand the dynamics with leap kind of flat this year.
Guam Kana: Jay and Safran are talking.
Guam Kana: Talking about leap up 10% to 15%.
Guam Kana: Really the rationale and my question is.
Speaker Change: For you guys at the cost plus contract and I know you guys don't have great visibility into sort of channel inventories, but.
Speaker Change: How should we think about that moving forward.
Speaker Change: Taking into account it is cost plus so.
Rob: So, you know, quarter after quarter, year after year, as you guys, you know, get up the learning curve, costs come down, how should we think about unit volumes versus, you know, absolute sales dollars for your LEAP program? Thanks.
Speaker Change: Quarter after quarter year after year as you guys get up the learning curve costs come down how.
Speaker Change: How should we think about unit volumes versus absolute sales dollars poorly program. Thanks.
Speaker Change: Yes.
Gunnar Kleveland: What we have, and it's a good question, and we are looking to improve the cost on this program, but there's also some improvement in margins as the cost comes down. So what we have forecasted for 2026 at the $200 million level for this program remains accurate.
Speaker Change: We have what we have.
Speaker Change: It's a good question.
Speaker Change: And we are looking to improve the cost.
Speaker Change: On this program.
Speaker Change: But theres also some improvement in margins as the cost comes down.
Speaker Change: So what we have forecasted for 2026 at the $200 million level for this.
Speaker Change: Program.
Speaker Change: <unk> accurate.
Rob: Yeah, I would just add, Jack, what you'll see is there's not a linear relationship between revenue and unit volume, to your point, as we do take costs out. So, you know, we feel really good about the strength of the LEAP program. And, you know, we are going to be able to grow revenue there, just not as quickly as the underlying volume increases would indicate. But the LEAP program is super critical for the commercialization of our 3D technology, which allows us to produce that at a lower cost, which then opens up a lot of other avenues for that technology.
Speaker Change: Yes, I would just add Jack.
Speaker Change: Youll see is theres not a linear relationship between revenue and unit volume to your point as we do take cost out.
Speaker Change: So we feel really good about the strength of the leap program and.
Speaker Change: We are going to be able to grow revenue, they're just not as quickly as the underlying volume increases.
Speaker Change: Indicate but it's also.
Speaker Change: The lead program is supercritical for the commercialization of our <unk> technology, which allows us to produce that at a lower cost, which then opens up a lot of other avenues for that technology.
Jack R. Ayers: Yeah, okay, totally. No, I get it.
Speaker Change: Yes totally.
Jack R. Ayers: And then just kind of switching to NC here, Rob. For Heimbach, are you guys still thinking that is, you know, going to come in relatively flat year over year? Any incremental updates on Heimbach's 24 sales?
Speaker Change: Got it and then.
Speaker Change: Just just kind of switching to empty here here Rob.
Unknown Executive: Hi, Mark are you guys still thinking that is going to come in relatively flat year over year.
Speaker Change: Any incremental updates for the high Mark in 'twenty four sales.
Rob: Sure, yeah, I think that the general perspective is, you know, we're going to be somewhere around flat for the year at Heimbach. And, you know, the focus there, of course, is not, you know, it's on integration. It's really combining the teams. I mean, that's going to be a huge focus for us as we go throughout 24 into 25.
Mark: Sure, Yes, I mean, I think the general perspective is we're going to be somewhere around flat for the year.
Mark: For ironbark and.
Speaker Change: Our focus there of course is not signed.
Mark: So on integration.
Mark: It's really combining the teams I mean, thats going to be a huge focus for us as we go throughout 'twenty four 'twenty five.
Jack R. Ayers: Okay, and then just one last one off of that. You know, obviously the integration is going well, it seems like. Are you guys still kind of sticking to that? That year three target of that three and a half, four times sort of, net synergy, post synergy, purchase multiple, does that still hold today for Heimbach?
Speaker Change: Okay, and then just one last one off of that.
Speaker Change: Obviously, the integration is going well it seems like are you guys still kind of sticking to that.
Speaker Change: That year, three target of that $3 five four times.
Speaker Change: Net synergy post synergy purchase multiple is that still hold today for ironbark.
Rob: It does. It does.
Speaker Change: It does it does we are.
Jack R. Ayers: You know, we are, you know, executing on the integration plan, and at this stage, we were definitely confident in our ability to achieve those synergies over that timeframe.
Speaker Change: We're executing on the integration plan.
Speaker Change: And at this stage.
Speaker Change: Im confident in our ability to achieve those synergies over that timeframe.
Jack R. Ayers: Okay, great. Thanks, guys.
Speaker Change: Okay, great. Thanks, guys I'll jump back in the queue.
Operator: I'll jump back in the queue. All right. Thank you, Jack. Thank you.
Speaker Change: Alright, Thank you Jack.
Operator: Thank you one moment for our next question. Our next question comes from the line of Chagusa Kadaku of JPM. Your line is now open.
Speaker Change: Thank you Juan for next question.
Speaker Change: Our next question comes from the line of Jacob <unk> of J P. M. Your line is now open.
Chigusa Katoku: Hi, this is Chigusa Katoku on behalf of Steve Tusa. Thanks for taking my question.
Speaker Change: Hi, This is Jason <unk> on for Steve Tusa, Thanks for taking my question.
Rob: My first question is on AEC margins. I think it looks like historically Q1 is the low point for margins seasonally for AEC. I was just wondering if we should expect margins to be higher than these levels for the balance of the year.
Jason: My first question is on the AUC margins I think it looks like historically Q1 is a low point for margins seasonally for AUC. I was just wondering if we should expect margins to be higher than these levels for the balance of the year.
Rob: Yeah, no, good question. So I mean, if you look at our, you know, kind of implied margin guide for the balance of the year, on average, it will be higher than the 19th floor we posted in Q1. The implied range for the balance of the year is 19.4 to 20%. So we're certainly working hard to do well on the margins. And, you know, we feel really confident with our backlog and the position we have on the contracts to have a very solid year at AEC.
Speaker Change: Yes.
Speaker Change: Good question. So I mean, if you look at our kind of implied margin guide for the balance of the year on average it will be higher than the 19, four we posted in Q1.
Speaker Change: The implied range for the balance of the year is 19, 4% to 20%.
Speaker Change: So we are certainly working hard to do while on the margins and.
Speaker Change: We feel really confident with our backlog and the position we have on our contracts to have a very solid year on AUC.
Chigusa Katoku: Okay, great, thanks. And then on MC, so core revenues declined this quarter after growing last quarter, and I was just wondering if the environment deteriorated this quarter and also if you expect core revenues to decline for the balance of the year. Yeah, I think what you saw.
Speaker Change: Okay, great. Thanks, and then on.
Speaker Change: Fee.
Speaker Change: And so core revenues declined this quarter after growing last quarter and I was just wondering if the environment deteriorated. This quarter and also if you expect core revenues to decline for the balance of the year.
Rob: Yeah, I think what you saw, you know, we came off a very strong fourth quarter. And it's really, you know, as we look at the backlog building, you know, that's what gives us confidence in the full year top line forecast for machine clothing. So we are we are expecting to see, you know, in the back half of the year, you know, higher core average quarterly sales levels in machine clothing relative to what we saw in Q1. Okay, great. Thank
Speaker Change: Yes, I think what you saw we came off a very strong fourth quarter and it's really as we look at the backlog building. That's what gives us confidence in our full year topline forecast for machine clothing. So.
Speaker Change: We are expecting see in the back half of the year higher core average quarterly sales levels in machine clothing relative to what we saw in Q1.
Speaker Change: Okay, great. Thanks.
Chigusa Katoku: Thank you, one moment for our next question. Again, as a reminder, to ask a question, you will need to press star 11 on your telephone. Our next question comes from the line of Pete Skibitski of Olympic Global.
Speaker Change: Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Again as a reminder to ask a question you will need to press star one on your telephone.
Speaker Change: Our next question comes from the line of Pete <unk>.
Pete: Olympic Global your line is now open.
Operator: A.P. So one thing I wanted to clarify, we've been talking about JASM a lot, and I want to understand if you guys also have content for LRASM, which my understanding is it's sort of a cousin variant of JASM, and so I wasn't sure if you also had content there, but you just don't talk about it a lot. I guess I'll start with that one.
Pete: Hey, good morning, guys.
Pete: Hey, Pete.
Pete: Okay.
Pete: So one thing I wanted to clarify we've been talking about jazz them a lot.
Speaker Change: I wanted to understand do you guys also have content on the al RASM, which my understanding is it's sort of a cousin variant of jazz them and so I wasn't sure. If you also had content there, but just don't talk about it a lot.
Speaker Change: I guess I'll start with that one.
Peter John Skibitski: Yeah, we have several new programs in missiles that we have not announced yet that we are in the early phases of providing parts and potentially getting contracts.
Pete: Yes.
Speaker Change: We have several new programs in <unk>.
Pete: <unk>, we have not.
Pete: Im just yet that we are in the.
Pete: In the early phases of providing.
Pete: Parts.
Pete: Potentially getting contracts.
Gunnar Kleveland: Okay, that was actually my next question, Gunnar. When would you guys be comfortable, do you think, talking about some of these new programs and potential sizes, I guess, not just in missiles but in space as well?
Pete: Okay. Okay that was actually my next question is when do you when would you guys be comfortable do you think talking about some of these new programs and potential sizes I guess not just in missiles base as well.
Pete: Yes.
Speaker Change: We will and we announced.
Gunnar Kleveland: We announced our contract with Sikorsky today. We will continue to update you all on new contracts as we win them. But in some cases, our customers, it takes a while before they let us share the content of the contract. But that is our intention, and we'll continue to do that. Big programs like that are definitely something we want to share and continue to follow.
Pete: Our contract with Sikorsky today, we'll continue to update you all on new contracts.
Pete: As we win them.
Pete: But in some cases our customers.
Pete: It takes a while before they before they let us.
Pete: Sure.
Pete: The content of the contracts, but that is our intention and we'll continue to do the big programs like that is definitely something we want to share.
Pete: Turning to development.
Peter John Skibitski: understood. I appreciate it.
Speaker Change: Understood I appreciate it and then I just wanted to ask we haven't talked about 787, yes, I don't think and not necessarily your biggest program, but slides and kind of a chunky program for you.
Peter John Skibitski: And then I just want to ask, we haven't talked about 787 yet, I don't think, and not necessarily your biggest program, but still, I think, kind of a chunky program for you. And of course, Boeing is talking about taking down production rates this year because of some supply chain issues, I think, unrelated to you guys. But has your expectation for revenue on that program changed this year? Is it maybe looking, you know, flat to down this year with a 25% recovery expected?
Speaker Change: Of course, Boeing is talking about taking down production rates. This year because of some supply chain issues I think unrelated to you guys but.
Speaker Change: As your expectation for revenue on that program change. This year is it is it maybe looking flat to down this year with a 25 recovery expected.
Gunnar Kleveland: So we had a good first quarter on 787 and you're right, the supply chain issues are not us. It is, I think we expected it to grow to seven through the end of the year. It might, you know, the forecast right now says five, so it'll be a little lower than we expected but not material for the AEC business.
Speaker Change: So we had a good first quarter on 787.
Speaker Change: And youre right that the supply chain issues.
Speaker Change: Is not us.
Speaker Change: It is.
Speaker Change: I think we expect it to grow to seven through the through the end of the year.
Gunnar Kleveland: It might.
Speaker Change: The forecast right now says five so it'll be a little lower than we expected, but not material.
Speaker Change: For the AUC.
Peter John Skibitski: Yeah, okay, I got it. And then last one for me.
Speaker Change: <unk>.
Speaker Change: Okay got it and then last one for me Rob you talked about I think repatriating non U S. Cash I'm, just wondering kind of what percentage you guys hold overseas and if you expect to take any kind of attacks.
Peter John Skibitski: Hey, Rob, you talked about, I think, repatriating non-US cash. I'm just wondering kind of what percentage you guys hold overseas and if you expect to take any kind of a tax hit on that or not.
Speaker Change: That or not.
Rob: Yeah, no, good question. Yeah, the majority of our cash, the large majority of our cash is overseas. And, you know, we have the ability to, you know, through working through different government contracts, or if we bring back the cash, pretty much tax-free, not always, it will depend. I mean, we did have an exit tax that we paid when we brought some cash back from Asia. But by and large, it's pretty nominal, the friction that we see and the opportunity costs, right? Our debt right now on the floating side is about 7%. So it really is an important initiative on our part to really optimize our cash balances globally. And JC and the team have been working very hard on that. Got it. Okay, that's great.
Rob: Yes, no. Good question, yes, the majority of our cash the large majority of our cash is overseas.
Speaker Change: <unk>.
Rob: We have the ability to.
Rob: Third we're working through the different government contracts.
Rob: To bring back the cash.
Speaker Change: Pretty much tax free.
Speaker Change: Not always it will depend on I mean, we did have an exit tax that we paid we brought some cash back from Asia by by and large it's pretty nominal date, the friction that we see and the opportunity costs right. Our debt right now on the floating side is about 7%. So it really is.
Rob: An important initiative on our part.
Rob: Really optimize our cash balances globally and chassis and the team are I have been working very hard on that.
Peter John Skibitski: Got it. Okay, that's great. Thanks, guys.
Speaker Change: Got it okay. That's great. Thanks, guys.
Speaker Change: Thank you Pete.
Gunnar Kleveland: Thank you. I'm showing no further questions at this time. I would now like to turn it back to Gunnar Kleveland, President and CEO, for closing remarks.
Peter John Skibitski: Thank you I'm showing no further questions at this time I'll now like to turn it back to garner Cleveland, President and CEO for closing remarks.
Gunnar Kleveland: 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.
Gunnar Kleveland: Thank you.
Gunnar Kleveland: 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: Thank you for your participation in today's conference. This concludes the program. You may now disconnect.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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