Q2 2024 Albany International Corp Earnings Call

Unknown Executive: Please refer to both our earnings release of August 6th, 2024, as well as our SEC filing, including a 10-K.

Press release of August 6th 2024, as well as our SEC filings, including our 10-K.

JC Chetnani: Now I will turn the call over to Gunnar Cleveland, our President CEO, who will provide opening remarks.

Speaker Change: Now I will turn the call over to <unk>, President and CEO, who will provide opening remarks.

Gunnar Kleveland: Gunnar, thank you, JC.

Unknown Executive: Thank you, JC. Good morning, and welcome everyone.

Thank you, Jason good morning, and welcome everyone.

Unknown Executive: Thank you for joining our second quarter earnings call. I will provide an overview of our business performance. Rob will later discuss our financial results in detail. 194 million grew year over year driven by our Heimbach acquisition, although slightly offset by lower organic demand, primarily in Europe and North America. Our global order backlog remains stable.

Gunnar Kleveland: Good morning and welcome everyone. Thank you for joining our second-order earnings call. I will provide an overview of our business performance. Rob will later discuss our financial results in detail. Overall, we had another good quarter, as our businesses delivered stronger results and are responding well to their industry challenges. We continue to deliver strong profitability and have further strengthened our balance sheet. Precashable was strong with 64 million generated in the second quarter. Machine coding revenues at 194 million grew year-over-year, driven by our Heimbach acquisition. Slightly offset by a lower organic demand, primarily in Europe and North America.

Speaker Change: Thanks for joining our second quarter earnings call.

Speaker Change: I will provide an overview of our business performance, Rob will later discuss our financial results in detail.

Speaker Change: Overall, we had another good quarter as our businesses delivered strong results and are responding well to the industry challenges. We continued to deliver strong profitability and have further strengthened our balance sheet.

Rob: Free cash flow was strong with $64 million generated in the second quarter.

Rob: Machine clothing revenues at.

Rob: $194 million grew year over year, driven by our Heimbach acquisition.

Rob: Slightly offset by a lower organic demand primarily in Europe, and North America.

Gunnar Kleveland: Our global order backlog remains stable. We continue to make progress with the integration of Heimbach. Our performance has improved sequentially quarter-over-quarter with a 220 basis point expansion in machine coding. Adjust the EBITDA margins. And we took further action on our global footprint with the consolidation of two UK facilities. We successfully implemented SAP at Heimbach in the second quarter, which will enable us to further execute on our integration plans for the second half of this year. We commend the team for executing the implementation with no operational disruption. And I thank them for all their hard work.

Rob: Our global.

Rob: Order backlog remained stable, we continue to make progress with integration of Heimbach. Our performance has improved sequentially quarter over quarter with a 220 basis point expansion in machine clothing.

Unknown Executive: We continue to make progress with the integration of Timebox. Our performance has improved sequentially quarter over quarter with a 220 basis point expansion in machine clothing, and we took further action on our global footprint with the consolidation of two UK facilities. This will further drive revenue growth in 2025 and beyond. For the quarter, we delivered 20% year-over-year top-line growth as our current programs ramp up. We see growth in our commercial markets, especially in space and other emerging platforms.

Rob: Adjusted EBITDA margins.

Gunnar Kleveland: Moving to our engineered composite segment, we are pleased to report that during the quarter, received over 200 million in new orders, bringing our year-to-date orders to over 900 million. This will further drive revenue growth in 2025 and beyond. For the quarter, we delivered 20% year-over-year top-line growth as our current programs ramp up. We see growth in our commercial markets, especially in space and other emerging platforms. Our defense business is also growing, primarily the CH-53K and Jessen platforms, partially offset by the Joint Strike Fighter program. However, our profitability for the quarter is lower, with adjusted EBITDA margins at 16.9%.

Unknown Executive: Our defense business is also growing, primarily the CH-53K and JASM platforms, partially offset by the Joint Strike Fighter Program. However, our profitability for the quarter was lower, with adjusted debit dot margins at 16.9%, lower by 130 basis points versus the prior year, driven by inefficiencies related to the program ramp-up. Turning to the LEAP program, we've been working closely with Safran to adjust our 2024 production plan in light of the continued situation at Boeing. We now anticipate LEAP revenue to be slightly down this year versus the prior year, with a minimal impact on overall profitability.

Gunnar Kleveland: Lower by 130 basis points versus the prior year, during and by inefficiencies related to program ramp up. We expect margins to improve in the second half due to operational improvements and program mix.

Gunnar Kleveland: Turning to the LEAP program. We've been working closely with some frown to adjust our 2024 production fine in light of the continued situation at Boeing. We now anticipate LEAP revenue to be slightly down this year versus the prior year. With minimal impact overall probability. Despite changes to LEAP production, we're maintaining our full-year AEC guide as all the programs will serve to offset this reduction. Overall, our business is performing well. Our margins and machine clothing are improving as we execute our Honda integration plans, and substantial new business wins at AEC have improved our backlog.

Unknown Executive: Despite changes to lead production, we're maintaining our full-year AEC guide, as all the programs will serve to offset this reduction. Overall, our business is performing well, our margins and machine clothing are improving as we execute our Heimberg integration plans, and substantial new business wins at AEC have improved our backlog. I would also like to welcome Chris Stone as President of AEC. Chris brings strategic capability combined with experience in leading complex operations and supply chains. These skills will be critical to AEC as they continue to execute their growth strategy. And with that, I'll hand it over to Rob to provide more details on the quarter. Rob.

Gunnar Kleveland: I would also like to welcome Chris Stallone, that's President of AEC. Chris brings strategic capability combined with experience and leading complex operations and supply chain. These skills will be critical to AEC as they continue to execute their growth strategy.

Rob: And with that, I'll hand it over to Rob to provide more details on the quarter.

Rob: Rob? Thank you, Gunnar, and good morning, everyone. I will review our second quarter result of 2024 and then provide our outlook for the balance of the year. Consolidated net sales came in at $332 million, up 21.1% from the second quarter of last year. The growth was driven by a combination of embark revenues and organic growth at Engineer Composites. Machine clothing net sales of $194 million increased 21.6% versus the second quarter of the prior year driven by embark, partially offset by a $4 million decline in organic sales on a currency adjusted basis. North America comps were lower year-over-year primarily due to a strong performance in the second quarter of last year.

Rob: Thank you, Gunnar, and good morning, everyone. I will review our second quarter results for 2024 and then provide our outlook for the balance of the year. Consolidated net sales came in at $332 million, up 21.1% from the second quarter of last year. The growth was driven by a combination of Heimbach revenues and organic growth at Engineered Composites. Machine clothing net sales of $194 million increased 21.6% versus the second quarter of the prior year, driven by Hamburg, partially offset by a $4 million decline in organic sales on a currency adjusted basis. North America comps were lower year-over-year, primarily due to a strong performance in the second quarter of last year. However, for the first half of the year, North America is stable, and this simply reflects quarter-to-quarter variability.

Rob: However, for the first half of the year, North America is stable, and it simply reflects quarter-to-quarter variability. AEC net sales of $138 million increased 20.5% from the second quarter of 2023. Our growth was driven by CH53K, 787, and other commercial and space programs. We continue to see a ramp up of our various commercial and defense programs. Consolidated growth profit was $112 million, up 10 million or 9.4% from the same period last year. Machine clothing growth margin decreased from 50.8% in the second quarter of 2023 to 45.9% in 2024. The reduction was driven by the inclusion of embark.

Unknown Executive: AEC net sales of $138 million increased 20.5% from the second quarter of 2023. Our growth was driven by CH53K. 787 and other commercial and space programs.

Unknown Executive: We continue to see a ramp-up of our various commercial and defense programs. Consolidated gross profit was $112 million, of $10 million, or 9.4% from the same period last year. Machine clothing gross margin decreased from 50.8% in the second quarter of 2023 to 45.9% in 2024. The reduction was driven by the inclusion of Heimbach.

Rob: When you exclude embark, machine clothing growth margins increased 90 basis points to 51.7% versus the prior year, reflecting continued excellent execution. We continue to progress on our high-bock integration plans, and we expect further margin expansion as a result in the common quarters. AEC gross margin decreased 200 basis points from 19.0% in the second quarter of 2023 to 17%. This includes a 5 million unfavorable change in the estimated profitability of long-term contracts. This is due to inefficiencies related to program ramp up. For comparison purposes, in the prior year, we recognize an unfavorable $2 million charge. Net R&D expenses increased 2 million in the second quarter versus the prior year, remaining at approximately 4% of revenues.

Unknown Executive: When you exclude Heimbach, machine clothing gross margins increased 90 basis points to 51.7% versus the prior year, reflecting continued excellent execution. We continue to progress on our Heimbach integration plans, and we expect further margin expansion as a result in the coming quarters. AEC's gross margin decreased 200 basis points from 19.0% in the second quarter of 2023 to 17%. This includes a $5 million unfavorable change in the estimated profitability of long-term contracts. This is due to inefficiencies related to the program ramp-up.

Unknown Executive: For comparison purposes, in the prior year, we recognized an unfavorable $2 million charge. Net R&D expenses increased $2 million in the second quarter versus the prior year, remaining at approximately 4% of revenues. We continue to make strides as we focus on material science capabilities to further differentiate ourselves from our competition.

Rob: We continue to make strides as we focus on material science capabilities to further differentiate ourselves from our competition. SG&A expenses for the quarter increased by 18.7% nominally, but this was due to a high-bock as a percentage of revenue, as SG&A has decreased from 17.1% to 16.7% as we continue to further streamline our operations and focus on efficiencies. Corporate expenses increased 7 million. This is primarily due to the high-bock IT-related cost, acquisition and integration-related expenses, and employee-related compensation. Additionally, we recorded foreign exchange hedging losses of 4 million as part of a global foreign exchange hedging program.

Unknown Executive: SG&A expenses for the quarter increased by 18.7% nominally, but this was due to Heimbach. As a percentage of revenue, SG&A has decreased from 17.1% to 16.7% as we continue to further streamline our operations and focus on efficiencies. Corporate expenses increased $7 million. This is primarily due to the Heimbach IT-related cost.

Unknown Executive: Acquisition and integration-related expenses and employee-related compensation. Additionally, we recorded foreign exchange hedging losses of $4 million as part of our global foreign exchange hedging program. These transactions do not qualify for hedge accounting treatment, and as such, we will experience quarterly fluctuations in the normal course of business. The effective tax rate for the quarter was 27.9%, versus 42.8% in the prior year, and generally in line with a long-term guidance of 30%.

Rob: These transactions do not qualify for hedge accounting treatment, and as such, we will experience quarterly fluctuations in the normal course of business. The effective tax rate for the quarter was 27.9% versus 42.8% in the prior year and generally in line with a long-term guidance of 30%. The rate for the second quarter of 2024 was lower than the prior year, mainly due to the unfavorable discrete adjustments we took in the prior year period. Gat net income attributable to the company for the quarter was 25 million compared to 27 million last year. Gat diluted EPS with 79 cents per share in this quarter versus 85 cents in the same period last year.

Unknown Executive: The rate for the second quarter of 2024 was lower than the prior year, mainly due to the unfavorable discrete adjustment we took in the prior year period. Gatton net income attributable to the company for the quarter was $25 million compared to $27 million last year. GATT diluted EPS was $0.79 per share in this quarter versus $0.85 in the same period last year, after adjustments primarily related to the Heimbach acquisition and other restructuring activities as detailed in our non-GAP reconciliation. The adjusted diluted EPS was $89, unchanged from the same period last year. As a reminder, we also had a $0.10 headwind from foreign exchange hedging this quarter. That is not reflected in our adjustment.

Rob: After adjustments primarily related to the high-buckout position and other restructuring activities as detailed in our non-GAAP reconciliation, the adjusted diluted EPS was 89 cents, unchanged from the same period last year. As a reminder, we also had a 10 cent headwind from foreign exchange hedging this quarter that is not reflected in our adjustments. Consolidated adjusted EBITDA was 63 million for the second quarter versus 65 million in the prior year period. Machine clothing adjusted EBITDA, including high-buck, was 62 million and increased the 5% versus the prior year. Adjusted EBITDA margins were 32.2% versus 37.3% in the prior year, with the decrease driven by the inclusion of high-buck.

Rob: On foreign exchange hedging this quarter that is not reflected in our adjustments.

Rob: Consolidated adjusted EBITDA was $63 million for the second quarter versus $65 million in the prior year period.

Rob: Machine Clothing Adjusted EBITDA, including Heimbach, was $62 million, an increase of 5% versus the prior year. Adjusted EBITDA margins were 32.2% versus 37.3% in the prior year, with a decrease driven by the inclusion of Heimbach. AEC's adjusted EBITDA was $23 million, a nearly 12% improvement over the prior year. Adjusted EBITDA margins at AEC were 16.9% of sales versus 18.2% in the prior year. During the second quarter, free cash flow was $64 million, with positive operating cash flow of $83 million, offset by capital expenditures of approximately $19 million. Our balance sheet remained strong with a cash balance of over $116 million and $430 million of borrowing capacity under our committed credit facility. The net leverage is below one turn.

Rob: Machine clothing, adjusted EBITDA, including <unk> was $62 million, an increase of 5% versus the prior year adjusted.

Rob: Adjusted EBITDA margins were 32, 2% versus 37, 3% in the prior year with the decrease driven by the inclusion of Heinbach.

Rob: AEC adjusted EBITDA was 23 million in nearly 12% improvement over the prior year. Adjusted EBITDA margins at AEC were 16.9% of sales versus 18.2% in the prior year. During the second quarter, free cash flow was 64 million, with positive operating cash flow of 83 million offset by capital expenditures of approximately 19 million. Our balance sheet remained strong, with the cash balance of over 116 million and 430 million of borrowing capacity under our committed credit facility. Net leverage is below one turn. This provides us with significant financial flexibility.

Rob: <unk> adjusted EBITDA was $23 million.

Rob: And nearly 12% improvement over the prior year adjusted EBITDA margins were 16, 9% of sales versus 18, 2% in the prior year.

Rob: During the second quarter free cash flow was $64 million with positive operating cash flow of 83 million offset by capital expenditures of approximately 19 million our balance sheet remains strong with a cash balance of over $116 million and $430 million of borrowing capacity under our committed credit facility.

Rob: This provides us with significant financial flexibility. Turning to our outlook for the balance of 2024, we are reaffirming our full guidance for the year. I want to provide some context around the segment level guides given the dynamic environment we are in. For machine clothing, the low end of the range reflects greater than expected softness in our European and Asian markets and delays in the realization of our targeted high box synergy. The high end of the machine clothing guide reflects improving market conditions in particular Europe, combined with constructive markets in the Americas and Asia, with Heimbach synergies realized ahead of schedule.

Rob: Net leverages below one turn this provides us with significant financial flexibility.

Rob: Turning to our outlook for the balance of 2024, we are reaffirming our full guidance for the year. I want to provide some context around the segment level guides given the dynamic environment we are in. For machine clothing, the low end of the range reflects greater than expected softness in our European and Asian markets and delays in the realization of our targeted high-buck synergies. The high end of the machine clothing guide reflects improving market conditions, in particular Europe, combined with constructive markets in the Americas and Asia, with high-buck synergies realized ahead of plan. For AEC, the low end of the range reflects further reductions in lead production, lower 787 rates, as well as continued challenges as we ramp up our key programs. The higher end of the range reflects better-than-expected performance on our program ramps, including on our new programs. Now I would like to open the call for questions.

Turning to our outlook for the balance of 2024, we are reaffirming our full guidance for the year.

Rob: I want to provide some context around the segment level guidance given the dynamic environment we are in.

Rob: For AAC, the low end of the range reflects further reductions in lead production, lower 787 rates, as well as continued challenges as we ramp up our key programs. The higher end of the range reflects better than expected performance on our program ramps, including on our new program. Now, I would like to open the call to questions.

Unknown Executive: We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to rejoin your question, simply press star one again.

Operator: We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via the loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue. Your first question comes from the line of Peter Arment with Beard. Your line is open.

Unknown Executive: If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star one to join the queue.

Peter Arment: Your first question comes from the line of Peter Arment with Bird. Your line is open.

Peter Arment: Yeah, thanks. Good morning Gunnar, Rob, and JC. Hey, Gunnar, maybe just to start on MC, could you talk a little bit about just kind of the organic side of things? I guess North America was up in Q1 and down in Q2, or is that more timing-related? And I guess, have you seen any kind of, or has that pacing kind of continued as we're halfway through Q3?

Gunnar Kleveland: Yeah, thanks, good morning Gunnar, Rob, please see. It kind of may be just to start on on MC. Could you talk a little bit about just kind of the what you saw from the organic side of things? I guess North America was up in Q1 and down in Q2. Is that more timing related, and I guess have you seen any kind of, or is that pacing kind of continued as we are halfway through Q3?

Gunnar Kleveland: Good morning, Peter. The comp for year over year was difficult this year, but if you look at the overall North America for the first half, we are up. So we believe that it's a continued strong market in the US. Got it.

Gunnar Kleveland: Good morning, Peter. The comp for year over year was difficult this year, but if you look at overall North America for the first half, we are up. So we believe that there is a continued strong market in the US.

Peter Arment: Got it. And then you've continued to do footprint consolidation. Where are you, I guess, on that journey? Are you completed for the year, or is there more to go?

Gunnar Kleveland: And then you've continued to do footprint consolidation. You know, where are you, I guess, in that journey?

Gunnar Kleveland: Is that, are you completed for the year or more to go? Now Peter, we are, we are continuing; we are on plan, and we're continuing the efforts through, frankly, through 2025, but there's more, more actions coming. Got it.

Gunnar Kleveland: Now, Peter, we are continuing, we are on plan, and we're continuing the efforts through, frankly, through 2025, but there's more, actually.

Peter Arment: And then just quickly on AEC, you mentioned that LEAP revenues are going to be slightly down, you know, can you call out maybe some of the programs that are going to be offsetting or providing you the ability to grow? Is that CH53K, is it JASM, you know, anything in particular?

Gunnar Kleveland: And then just quickly on AAC, you mentioned that lead revenues are going to be slowly down. You know, can you call out maybe some of the programs that are going to be offsetting or providing you the ability to grow with that CH53K, that JASM, you know, anything in particular?

Gunnar Kleveland: On the military programs, it is definitely the CH-53K and JASM. But for our guide, some of our new programs that we reported the 200 million in new orders include space, engine components, and that that'll that'll start later this year and and continue through you know the long term. We are signing some good long-term contracts, and that's helping our backlog and future. But there are some... Editions this year as well. So that's how we're holding our guide.

Gunnar Kleveland: On the military programs, it is definitely CH553K and JASM, but for our guide, some of our new programs that we reported the 200 million in new orders includes space, engine components, and that will start later this year and continue through, you know, the long term. That's, we are signing some good long term contracts, and that's helping our backlog and future. But there are some additions this year as well. So that's how we're holding our guide.

Peter Arment: Okay, and just lastly, on the 737 rate, when do you expect to be back in sync with where, ultimately, Boeing gets if it gets to 38 a month at the end of the year?

Gunnar Kleveland: Okay, and just lastly, on the 737 rate, when do you expect to be back in sync with or ultimately Boeing gets it, Boeing gets the 38th month at the end of the year? Yeah, that's difficult to answer, Peter. I think Boeing; we have no challenge with meeting any ramp up. We know we have the capacity. Our work is with Saffron to make sure that we do not build inventory in this period. And so we have adjusted our rates. Our ability to ramp up following that will be is not the challenge for us. And we'll monitor Boeing through this, as well as what's happening with the actual lead engine and some of the supply chain issues they're having that.

Gunnar Kleveland: Yeah, that's difficult to answer, Peter. I think Boeing we have no challenge with meeting any ramp-up. We know we have the capacity. Our work is with Safran to make sure that we do not build inventory in this period, and so we have adjusted our rates. Our ability to ramp up following that is not a challenge for us, and we'll monitor Boeing throughout this, as well as what's happening with the actual leap engine and some of the supply chain issues they're having with that, but we're, we're tight with Safran and adjusting as necessary. Appreciate all the details. Thanks, Gunnar.

Gunnar Kleveland: But we're, we're, we're tight with Saffron and adjusting as necessary.

Peter Arment: I appreciate all the details.

Gunnar Kleveland: Thanks, Connor. Sure.

Pete Skibitski: Next question comes from the line of Pete Skibitski with Alamic Global. Your line is open.

Peter Skibitski: The next question comes from the line of Peter Skibitski with Alembic Global. Your line is open. Hey, good morning, guys.

Pete Skibitski: Thank you, morning, guys. Hey, Gunnar, I want to make sure I understood you right. Did you say the year-to-date orders is more than 900 million that AEC, or is that backlog? Yeah, that's new orders we have taken this year is 900 million, and that transfers to the backlog some this year, but 2020 primarily 2025 and beyond. Okay, so that was the order flow. What's the backlog? It's about 1.2 billion. Okay, okay, and that's just for AEC. You guys are talking about? Yes. That's right. It's correct. Yes. Okay, okay. That's great. That's pretty sizable and seems like at this point.

Peter Skibitski: Thank you. Monster. Hey, Gunnar, I want to make sure I understood you right. Did you say the year-to-date orders are more than $900 million at AEC, or is that just the backlog?

Gunnar Kleveland: Yeah, that's the new new orders we have taken this year is 900 million. And that transfers to the backlog some this year, but primarily 2025 and beyond. OK.

Peter Skibitski: Okay, so that was the order flow. What's the backlog?

Gunnar Kleveland: It's about 1.2 billion. Okay, okay. And that's just for starters.

Peter Skibitski: Okay, okay, and that's just for the AEC you guys were talking about? Yes, that is correct. Okay, okay. That's great. That's pretty sizable, it seems like at this point.

Pete Skibitski: And then you guys taught in the release. Yeah, you guys taught in the release about the strength in space and other emerging markets.

Peter Skibitski: And then you guys talked in the release about the strength in space and other emerging markets. I guess that was part of that workflow process. Any more details? I know you're been kind of reluctant to talk too much about the new stuff, but are we any closer to being able to talk more about, you know, what exactly you're doing in space and what other new programs you're involved with there, so we can get a sense of kind of the long-term upside?

Gunnar Kleveland: I guess that was part of been kind of reluctant to talk too much to the new stuff, but are we any closer to being able to talk more about what exactly you're doing in space and what other new programs you're involved with there so we can get a sense of kind of the long term upside. I think the good part here is that we keep getting orders, and they're not spot-byes. They're both in on the space as well as in other programs. We're not yet able to share who our customers are. I think as these programs expand, my goal is to be able to share that, but we're not at that point yet.

Gunnar Kleveland: I think the good part here is that we keep getting orders, and they're not spot buys. They're long-term agreements based on our ability to deliver, both in the space as well as in other programs. We're not yet able to share who our customers are. I think as these programs expand, my goal is to be able to share that, but we're not at that point yet, Pete.

Peter Skibitski: Okay, okay, fair enough. Last one for me.

Rob: Perhaps.

Speaker Change: We're not yet.

Rob: <unk> to share our.

Speaker Change: Our customers are I think.

Speaker Change: These programs expand my my goal is to be able to share that but we're not at that point yet.

Pete Skibitski: Okay. Fair enough.

Peter Skibitski: The $5 million negative EAC adjustment, I think at AEC. Do you guys feel like you've got a good handle on that program now? It sounds like it was a newer program. You guys have not had a history of EAC changes of any meaningful size, and, you know, I think aerospace analysts are in shell shock because there are other firms out there that kind of take serial EAC charges quarter after quarter on the same programs. And so I just would like to get a sense that you guys feel like you've really got this particular program, you know, well aligned to what future accounting looks like.

Speaker Change: Okay, Okay fair enough last one for me.

Pete Skibitski: Last one for me. The 5 million negative EAC adjustment I think at the EAC. Do you guys feel like you've got a good handle on that program now?

Speaker Change: 5 million negative.

Speaker Change: The adjustment I think.

The AUC.

Speaker Change: Do you guys feel like you've got a good handle on that program now it sounds like it was a newer program in <unk>.

Rob: It sounds like it was a newer program and you guys have not had a history of EAC changes of any meaningful size, and you know I think aerospace analysts are in shell shock because there's other firms out there that are kind of take serial EAC charges quarter after quarter on the same programs. And so I just would like to get a sense that you guys feel like you've really got this particular program you know well aligned to what the future accounting looks like.

Speaker Change: Have not had a history of EAC changes of any meaningful size in.

Speaker Change: I think aerospace analysts are in shell shocked because there is other firms out there that are kind of take cereal.

Speaker Change: AAC charges quarter after quarter on the same programs and so I just would like to get a sense that you guys feel like you've really got at this particular program.

Speaker Change: Well aligned to what the future accounting looks like.

Rob: Yeah, Pete, that is Rob. I mean if you look historically, you know our EAC adjustments have been, you know, less than 1% of top line. So to a point, you know, this year today we're about 7 and a half million, which is, you know, it's been higher than clearly that we would like. But you know, we've been working very closely on a number of these programs and feel good about the adjustments that we've made to reflect the state of the programs. And you know, we're certainly very closely monitoring the operations to make sure that they're performing. So you know, at this stage we feel, you know, we feel confident with the adjustments. And you know, these are really good long term programs that are complicated in their ramp up. So you know, we're working that very closely.

Rob: Yeah, Pete, this is Rob. I mean, if you look historically, our EAC adjustments have been, you know, less than 1% of the top line. So to your point, you know, this year to date, we're about seven and a half million, which is, you know, it's a bit higher than we would obviously like. But, you know, we've been working very closely on a number of these programs and feel good about the adjustments that we've made to reflect the state of the programs.

Speaker Change: Yes, Pete this is Rob I mean, if you look historically.

Speaker Change: AAC adjustments have been less than 1% of topline so to your point. This year today, we're about $7 5 million, which is.

Speaker Change: It's been higher then clearly that we would like but we.

Speaker Change: We've been working very closely on a number of these programs and feel good about that.

Speaker Change: Adjustments that we've made to reflect the state of the programs and.

Rob: And, you know, we're certainly very closely monitoring the operations to make sure that they're performing. So, you know, at this stage, we feel, you know, we feel confident with the adjustments. And, you know, these are really good long-term programs that are complicated in their ramp-up. So, you know, we're working on that very closely.

Speaker Change: Certainly very closely monitoring the operations to make sure that they are performing so.

Speaker Change: At this stage, we feel we feel confident with the adjustment.

Speaker Change: And.

Speaker Change: These are really good long term programs that are complicated and their ramp up.

Speaker Change: So we're working that very closely.

Gunnar Kleveland: And I would just add, this is the year we added additional content and we're going to full rate at the same time, so it is a major effort by the team, but we are ramping up, and we're supporting our customers. Okay, okay. Thanks for the call, guys.

Gunnar Kleveland: and I would just add, this is the air where we added the additional content and we're going to full rate at the same time, so it is a major effort by the team, but we are ramping and we're supporting our customers.

Speaker Change: And I would just add this is the year, where we added.

Speaker Change: Additional content and.

Speaker Change: Going to full rate.

Speaker Change: At the same time so.

Speaker Change: It is.

Speaker Change: It is.

Speaker Change: A major effort by the team.

Speaker Change: But we are we are ramping that we're supporting our customers.

Pete Skibitski: Okay, thanks for the call, guys. Appreciate it. Thank you, Peter.

Peter Skibitski: Okay, okay. Thanks for the call, guys. I appreciate it. Thank you, Peter.

Speaker Change: Okay. Okay. Thanks for the color guys I appreciate it.

Pete: Thank you Pete.

Jordan Lyonnais: Next question comes from the line of Jordan, you and I with Bank of America. Your line is open.

Jordan Lyonnais: The next question comes from the line of Jordan Lyonnais with Bank of America. Your line is open.

Pete: Next question comes from the line of Jordan.

Speaker Change: <unk> with Bank of America. Your line is open.

Jordan Lyonnais: Hey, good morning. Morning, Jordan. I know the agency got it.

Jordan: Hey, good morning.

Gerard: Good morning Gerard.

Jordan Lyonnais: I appreciate the color that you gave earlier, just in that downside risk, how much of how much is being considered if there were to be an extended strike at Boeing? And what would that mean for follow-on production rights for the lead?

Jordan Lyonnais: I appreciate the color that you gave earlier, just in that downside risk. How much of, how much she's being considered if there were to be an extended strike at Boeing and what that would mean for fall on production right to the leap? Yeah, Jordan's a really good question. I mean, I think if there were a strike at Boeing, clearly, I mean, we've taken some of that into the downside, but it really just, it would depend on the length of that strike and really what that really looks like, and that comes down to length. I mean, clearly, that's hard to forecast, but we definitely, the downside does reflect lower leap production, which certainly would result if there were the strike.

Speaker Change: Got it I appreciate the color.

Speaker Change: David.

Gerard: Yes.

Speaker Change: In that downside risk.

Speaker Change: How much.

Speaker Change: How much is being considered if there were to be an extended strike at Boeing and what that would mean for follow on production rates.

Speaker Change: Sure.

Rob: Yeah, Jordan, it's a really good question. I mean, if there were a strike at Boeing, clearly, you know, I mean, we've taken some of that into the downside. But it would really depend on the length of that strike and really, you know, what that really looks like. And, you know, that comes down to length. I mean, clearly, that's it. That's hard to forecast. Yeah, but, you know, we definitely, the downside does reflect lower lead production, which certainly would result if there was a strike.

Speaker Change: Yes, Jordan, it's a really good question I mean, I think if there if there were a strike at Boeing clearly.

I mean, we've taken some of that into the end to the downside, but it really just depend on the length of that strike and really what that really looks like and that comes down to Atlanta, I mean, clearly that's hard to forecast but.

Speaker Change: Definitely.

Speaker Change: Downside does reflect lower lead production.

Speaker Change: Which certainly would result, if there was a strike.

Jordan Lyonnais: Got it.

Gunnar Kleveland: Okay, and then on the new order strong backlog, how do you feel about current headcount to meet the ramp across these programs? I think, you know, hiring has been challenging over time. I think so like is our biggest side than where we're hiring the most. We are almost at the rate that, you know, the headcount that we need for the current ramp up. And so, you know, now the trick is to keep everyone. So, I'm, you know, the team is, our HR team is performing well, we're bringing people in and they're becoming effective, but hiring is more challenging in some, like, than any of our other sites.

Speaker Change: Got it Okay and then on the.

Speaker Change: New orders strong backlog.

Speaker Change: Hi.

Speaker Change: How do you feel about head count.

Speaker Change: The ramp across these programs.

Gunnar Kleveland: I think, you know, hiring has been challenging over time. I think Salt Lake is our biggest site and where we're hiring the most. We are almost at the rate of the headcount that we need for the current ramp-up. And, and so, you know, now that the trick is to keep everyone, so I'm, you know, the team is, our HR team is performing well, we're bringing people in, and they're becoming effective.

I think.

Speaker Change: Hiring is.

Speaker Change: Has been challenging over time, I think salt Lake is our biggest site, where we're hiring the malls.

Speaker Change: We are almost at the rate.

Speaker Change: But.

The head count that we need for the current ramp up.

Speaker Change: And so I will now.

Speaker Change: Now.

Speaker Change: The trick is to keep everyone. So.

Gunnar Kleveland: But, but hiring is more challenging in Salt Lake than any of our other sites we, and I will say that both for MC and AEC, we do not have a challenge with hiring at any of the other sites. Got it. Thank you so much.

Speaker Change: Hum.

Speaker Change: Yes.

Speaker Change: Team is our HR team is performing well, we're bringing people in and they are becoming effective but.

Speaker Change: But hiring is more challenging in salt lake that any of our other sites.

Gunnar Kleveland: And I will say that both for NC and AAC, we do not have a challenge on hiring in any other sites.

Speaker Change: I will say that both for MCC and AAC, we do not have a challenge on.

Speaker Change: On hiring in any of the other sites.

Jordan Lyonnais: Got it.

Jordan Lyonnais: Thank you so much.

Speaker Change: Got it thank you so much.

Jordan Lyonnais: Thank you, Jordan.

John: Thank you John.

Jack Ayers: Next question comes from the line of Jack Ayers with DD Cowan.

Jack Ayers: The next question comes from the line of Jack Ayers with Tilly Cowen. Your line is open.

John: Next question comes from the line of Jack Andrews.

John: TV Colin your line is open.

Jack Ayers: Your line is open. Hey guys, good morning.

Jack Ayers: Hey guys, good morning. Thanks for the question.

Jack Andrews: Hey, guys good morning.

Jack Ayers: Thanks for the question. Hey, yeah, so I'm just kind of drilled down again on sort of the leap production forecast. I know you guys are just kind of calling it down year over year. I wonder if you could maybe, you know, refine that a little bit more.

Thanks for the question.

Jack Ayers: Hey, yeah, so I just kind of wanted to drill down again on sort of the leap production forecast. I know you guys are just kind of calling it down year over year. I wonder if you could maybe, you know, refine that a little bit more. And then, I guess, going into next year, how we think about 2025, just given, you know, the assumptions already at CFM about, you know, the 40% sequential ramp and leap output in H2, and if those guys don't hit those targets, kind of what that means for 2025. Any color there would be helpful.

Jack Andrews: Hey, yes, so just kind of wanted to drill down again on sort of the lead production forecast I know you guys are just.

Speaker Change: Calling it down year over year.

I Wonder if you could maybe refine that a little bit more.

Jack Ayers: And then I guess going into next year, how we think about 2025, just given, you know, the assumptions already at CFM about, you know, the 40% sequential ramp in Leap output in H2. You know, if those guys don't hit those parties, it's kind of what that means for 2025. It's just any color; there would be helpful. Thanks.

Speaker Change: And then I guess going into next year, how do we think about 2025.

Speaker Change: Just given the.

Speaker Change: The assumptions already at CFM about the 40% sequential ramp in leap output in each two.

Speaker Change: If those guys don't hit those targets kind of what that means for 2025, just any color there would be helpful. Thanks.

Gunnar Kleveland: Yeah, Jack, I mean, I think for 24, I mean, we're looking at approximately, you know, five or so million dollar reduction in leave revenues and, you know, approximately about one or so million of EBITDA impact. The planning, of course, is underway for 2025.

Rob: Yeah, Jack, I mean, for 24, we're looking at about, you know, approximately, you know, five or so million dollar reduction in leave revenues and, you know, approximately about one, one or so million of EBITDA impact. The planning, of course, is underway for 2025. We're, you know, we're not in the position to necessarily provide any outlook towards 2025. But as Gunnar referenced, we are very much aligned with Safran, who clearly is in close discussions with their customers regarding the LEAP engine.

Speaker Change: Yes, Jack I mean, I think for 'twenty four I mean, we're looking at approximately $5 $7 million reduction in lead revenues.

Speaker Change: Approximately about one cornerstone.

Speaker Change: EBITDA impact.

Speaker Change: The planning of course is underway for 2025.

Rob: We're, you know, we're not in the position to necessarily provide any outlook towards 2025, but as Gunnar referenced, we're very much aligned with the front of clearly as in close discussions with their customers regarding the lead vengeance. So, you know, we have the flexibility to adjust our output, either up or down. And it's, you know, to your point, right, there's just a lot of volatility right now around, you know, the lead supply chain, nothing to do with us, but, you know, we're just going to have to navigate. Okay, that makes sense.

Speaker Change: We're not in a position.

Speaker Change: <unk> provide any any outlook towards 2025, but as <unk> referenced.

Speaker Change: We are very much aligned with the front end clearly is in close discussions with their customers.

Rob: So, you know, we have the flexibility to adjust our output, either up or down. And it's, you know, to your point, right, there's just a lot of volatility right now in the leaf supply chain, nothing to do with us. But, you know, we're just going to have to navigate.

Speaker Change: Regarding the leap engine so.

Speaker Change: We have the flexibility to adjust our output either up or down.

Speaker Change: And to your point right. So just a lot of volatility right now around the leap supply chain.

Speaker Change: Nothing to do with us.

Speaker Change: But we're just going to have to navigate.

Speaker Change: Yeah.

Rob: Okay, that makes sense. And then just a quick one on 787. I know you guys called it. You know, up this quarter, can you size that, like basically how big that program is today for you guys?

Speaker Change: Okay that makes sense and then just a quick one on 787 I know you guys called it.

Rob: And then just a quick one on 787. I think you guys called it, you know, up this quarter. Can you size that like basically how big that program is today for you guys? Yeah, no, we haven't. I mean, we, I mean, it is an important commercial program for us. We have not in the past discussed the, you know, the relative program size, you know, for us year-over-year. If you recall, you know, 787 went, you know, to a pretty low production rate for a long time. And, you know, year-over-year, it's been a favorable, you know, comp for us.

Speaker Change: <unk> up this quarter can you size that like basically how big that program is today for you guys.

Rob: Yeah, no, no, we haven't. I mean, we, I mean, it is an important commercial program for us. We have not, in the past, discussed that, you know, the relative program size, you know, for us year over year. If you recall, you know, 787 went to a pretty low production rate for a long time. And, you know, year over year, it's been a favorable comp for us. But we are clearly, you know, aligning our production with Bolling's run rate as they ramp back up to five per month.

Speaker Change: Yes, we haven't we.

Speaker Change: It is an important commercial program for us we have not in the past discussed.

Speaker Change: Relative program size for us year over year, if you recall.

Speaker Change: 770, <unk>, a pretty low production rates for a long time.

Speaker Change: Year over year, its been a favorable comp for us.

Rob: But we are clearly, you know, aligning our production with, you know, bonus run rate as they ramp back up to five per month.

Speaker Change: But we are clearly aligning our production with.

Speaker Change: <unk> run rate as they ramp back up to five per month.

Speaker Change: No.

Jack Ayers: Okay, great.

Jack Ayers: Okay, great. And then, and then I guess just one high-level question, I guess, for Gunnar here. You know, kind of coming into this relatively new, I think, for the past few quarters, just would love to hear your, you know, sort of perspective on the portfolio. You know, you've got a ramping aero business here and a kind of, you know, unique MC business. So, would love to hear your impressions of the MC business and, kind of, moving forward, how you kind of see the portfolio evolving. Thanks so much.

Speaker Change: Okay great.

Gunnar Kleveland: And then, and then I guess just, just one high-level question, I guess, for Gunnar here, you know, kind of coming into this relatively new, I think for the past few quarters, just about to hear your, you know, sort of perspective on the portfolio. You know, you've got a ramping arrow business here, and a kind of, you know, unique NC business, so would want to hear your impressions of the MC business and kind of moving forward how you kind of see the portfolio evolving. Thanks so much. Thank you, thank you, Jack.

Speaker Change: And then and then I guess, just one high level question I guess for Gunnar here.

Gunnar: Kind of coming into this relatively new I.

Speaker Change: I think for the past few quarters just.

Gunnar: Would love to hear your perspective on the portfolio.

Speaker Change: You have got a ramping aero business here and it kind of unique and sea business. So would love to hear your impressions of DMC business.

Speaker Change: And kind of moving forward, how you kind of see the portfolio evolving thanks, so much.

Gunnar Kleveland: Thank you, thank you, Jack. And, and, you know, we are going through our strategy review and strategy planning for the next five years now. So I'm well versed. I do appreciate being called new still. I think I have another month.

Jack Andrews: Thank you Jack.

Gunnar Kleveland: And, you know, we are going through our strategy review and strategy planning for the next five years. Now, I'm well-versed. I do appreciate being called New Still. I think I have another month. But it is, I really, I love the machine-clothing business. I think, you know, the name is a misnomer in a way, but it's a great business. I think that acquisition of Heimbark was a good opportunity. As we integrate, that'll continue to be a strong business for us with great returns and great cash flow, and what's not to like about that. So machine-clothing, I like. The foundation I want to repeat is material science, and we have this ability to use our technology, our material science, to expand on what was started with machine-clothing and expanded into aerospace with the 3D woven parts.

Speaker Change: <unk>.

Speaker Change: We are going through our.

Speaker Change: The strategy review and strategy planning for the next five years now.

Speaker Change: Well versed I do appreciate being called new still.

Speaker Change: I think I have another month.

Speaker Change: It is.

Gunnar Kleveland: But it is. I really love the machine clothing business. I think, you know, the name is a misnomer in a way, but it's a great business. I think the acquisition of Heimbach was a good opportunity. As we integrate, that'll continue to be a strong business for us with great returns and great cash flow, and what's not to like about that? So machine clothing, I like it. The foundation, I want to repeat, is material science, and we have this ability to use our technology, our material science, to expand on what was started with machine clothing and expand it into aerospace with 3D woven parts. I think we have lots of opportunity there.

Speaker Change: Hi.

Speaker Change: The machine clothing business.

Speaker Change: The name is a misnomer in Hawaii.

Speaker Change: Great business I think the acquisition of <unk>.

Speaker Change: <unk> was a good opportunity as we integrate that will continue to be a strong business for us with great returns and great cash flow and what's not to like about so machine clothing I like the foundation and I want to repeat is material science and we have this ability to.

Speaker Change: We use our.

Speaker Change: Our technology material science to to expand on what was started with.

Speaker Change: Machine clothing and expanded into.

Speaker Change: To aerospace with the with the three D woven.

Speaker Change: Parts and I think we have lots of opportunity there the growth rate.

Gunnar Kleveland: And I think we have lots of opportunity there. The growth rate on aerospace business is very good. We need to be able to manage the growth. And I see continued growth, but maybe moving more towards our, you know, our technology there.

Gunnar Kleveland: The growth rate in the aerospace business is very good. We need to be able to manage the growth, and I see continued growth, but maybe moving more towards our.., you know, our technology there. So 3-D woman is a... is a focus in years to come.

Speaker Change: On the.

Speaker Change: The aerospace business is very good we need to be able to manage the growth.

Speaker Change: See I see continued growth.

Speaker Change: But may be moving more towards our.

Speaker Change: Our technology there.

Gunnar Kleveland: Peter, so 3D woman is a focus in years to come.

Speaker Change: <unk> enrollment is.

Speaker Change: It is a focus in years to come.

Jack Ayers: Great thanks, guys. I'll pass it on. Great, thank you, Jack.

Jack Ayers: Great. Thanks, guys.

Speaker Change: Great. Thanks, guys I'll pass it on.

Jack Andrews: Great. Thanks, Jack.

Unknown Executive: Again, if you would like to ask a question, press car 1 on your telephone keypad.

Jack Ayers: I'll pass it on. Great. Thanks.

Speaker Change: Again, if you would like to ask a question best Taiwan on your telephone Keybanc.

Michael Ciarmoli: And we have our last question comes from the line of Michael Ciarmoli with Truly Security.

Michael Ciarmoli: Again, if you would like to ask a question, press star 1 on your telephone keypad. And we have our last question, which comes from the line of Michael Ciarmoli with Ruiz Securities. Your line is open.

Speaker Change: And we have our last question comes from the line of Michael <unk> with <unk> Securities. Your line is open.

Michael Ciarmoli: Ciarmoli is open. Hey, good morning, guys.

Michael Ciarmoli: Hey, good morning, guys. Thanks for taking the questions. Just to maybe keep pushing this LEAP issue, can you maybe give us a better sense of, do you have an idea of what kind of inventory is in the channel? And I know you said a couple of times you're aligned with Safran. I mean, they were originally planning 20 to 25% growth in LEAP for the beginning of the year, which I guess would have been nearly 2,000 engines.

Michael: Hey, good morning, guys. Thanks for taking the questions.

Michael Ciarmoli: Thanks for taking the questions. I just to maybe keep beating this lead issue, can you just maybe give us a better sense of, do you have an idea of what kind of inventory inventory is in the channel? And I know you said a couple times you're aligned with Safran. I mean, you know, they were originally planning 20 to 25% growth in LEAP for the beginning of the year, which I guess would have been nearly 2000 engines. They scaled that back to 10 to 15 and now flat. So, I mean, are you guys actually producing units now, or are they an inventory burn down situation?

Jack Andrews: Alright.

Speaker Change: Maybe you keep beating this leap issue.

Speaker Change: Can you just maybe give us a better sense of that.

Speaker Change: You have an idea of what kind of inventory.

Speaker Change: <unk> is in the channel and I know you said a couple of times, you're aligned with SaaS Fran.

Speaker Change: They were originally planning $20 to 25% growth.

Speaker Change: In the lead for the beginning of the year, which I guess would have been nearly 2000 engines. They scaled that back to 10 to 15 and now flat. So I mean are you guys actually.

Michael Ciarmoli: They scaled that back to 10 to 15, and now it's flat. So, I mean, are you guys actually... Producing Units now, or is it an inventory burndown situation? Can you give us any more color of maybe what's in the channel there?

Speaker Change: Producing units now or they are in.

Speaker Change: The inventory burn down situation can you give us any more color of maybe what can the channel there.

Gunnar Kleveland: Can you give us any more color of maybe what's in the channel there? Yeah, we are continuing to produce. It's important that we continue to produce and keep our people both engaged and the technology fresh there. We were flat from last year, which means we had started the inventory burn down as we’re coming into the second half. We are further reducing our rates, which will, you know, have an impact on all the inventory going forward, but we're maintaining; we're trying to maintain an inventory for the contract with Safran.

Gunnar Kleveland: Yeah, we are continuing to produce. It is important that we continue to produce and keep our people both engaged, and the technology fresh there.

Speaker Change: So.

Speaker Change: Yes.

Speaker Change: Continuing to produce.

Speaker Change: It is important that we continue to produce and keep our.

Speaker Change: People, both engaged and the technology of fresh there.

Speaker Change: We we were flat from last year, which means we had started.

Gunnar Kleveland: We were flat from last year, which means we had started the inventory burndown. As we're coming into the second half, we are further reducing our rates, which will have an impact on inventory going forward. But we're maintaining, or we're trying to maintain an inventory for the contract with Saffron, where the inventory is beyond that.

Speaker Change: The inventory burn down.

Speaker Change: As we're coming into the second second half.

Speaker Change: We are further reducing our rates which will.

Speaker Change: We have an impact.

Speaker Change: All of the inventory.

Speaker Change: Going forward, but we're maintaining we're trying to maintain in inventory.

Speaker Change: Further contract with so far.

Gunnar Kleveland: Okay, where are the inventory all that I don't know.

Speaker Change: Okay, where the inventory of that.

Speaker Change: Hi.

Speaker Change: Don't know.

Rob: Okay, and then just thinking about knowing that that's a unique contract and not as accretive to margins, you know, the second half AEC and obviously you had the negative EAC this quarter, but it looks like you got a 21% or so run rate in the second half. What are the big sort of drivers that kind of give you the confidence in that margin level in the second half?

Michael Ciarmoli: Okay. And then just thinking about knowing that that's a unique contract and not as accretive to margins, you know, the second half AEC, and obviously you had the negative EAC this quarter, but it looks like you got a 21% or so run rate in the second half. What are the big sort of drivers that kind of give you the confidence in that margin level in the second half?

Speaker Change: Okay, and then just thinking about knowing that that that's a unique contract and not as accretive to margins. The second half AUC and obviously you had the negative EAC this quarter, but it looks like you've got a 21% or so run rate.

Speaker Change: In the second half what are the big sort of drivers that kind of gives you the confidence in that margin level in the second half.

Rob: Yeah, Michael is wrong. But there are a few things that give us that confidence. The first is that there is going to be a bit of a shift in program mix. A lot of our space and other programs that we expect to see improve sales in the back half of the year carry higher margins. The operational challenges that led to some of the EACs, we're working to overcome those, and feel confident that we'll be able to produce more efficiently in the second half.

Rob: Yeah, Michael is Rob. There are a few things that give us that confidence. The first is there is going to be a bit of a shift in program mix. A lot of our space and other programs that we expect to see improve sales in the back half of the year carry higher margin. The operational challenges that led to some of the AACs were working to overcome those and feel confident that we'll be able to produce more efficiently in the second half. So you have that. And then thirdly, a number of these restructuring activities that you see at AEC are really about getting the cost structure to a much better place at AEC.

Speaker Change: Yes.

Speaker Change: Michael is there are a few things that that gives us that confidence.

Michael: The first is there is going to be a bit of a shift in program mix a lot of our space and other programs that we expect to see improved sales in the back half of the.

Speaker Change: Air carry higher margin.

Speaker Change: The operational challenges that led to some of the Acs, we're working to overcome those and feel confident that we'll be able to produce more efficiently in the second half. So you have that and then thirdly I.

Rob: So, you have that. And then, thirdly, a number of the restructuring activities that you see at AEC are really about getting the cost structure to a much better place at AEC. And that is also going to be a significant contributor in the second half of the year based on the SG&A reductions that we've made there. So, it's really those three items that, you know, give us confidence in the back half of the year, Marge.

Speaker Change: A number of these restructuring activities that you see at AAC are really about getting the cost structure to a much better place at AAC and that is also going to be a significant contributor in the second half of the year based on the.

Rob: And that is also going to be a significant contributor in the second half of the year based on the SG&A reductions that we've made there. So it's really those three items: that, that, that, you know, give us a conference back after the year of March. Okay. Got it.

Speaker Change: The SG&A reductions that we've made there so it's really those three items.

Speaker Change: That.

Speaker Change: It gives us the confidence in the back half of the year March Okay.

Michael Ciarmoli: Got it. And then just one more, more broadly on that, not to hone in directly on that negative EAC, but clearly, you're winning more defense and space work, and presumably, those programs come with a lot more risk. I mean, as you look at your bidding process, contracting terms, design analysis, program management, do you feel that everything is robust enough to sort of contemplate and capture any potential overruns or challenges so you kind of don't get into these persistent negative EACs?

Rob: And then just, just one more, more broadly on that, not, not to hone in directly on that, that negative EAC, but, but clearly you're winning more defense and space work, and presumably those programs come with a lot more risk. I mean, you know, as you look at your bidding process, contracting terms, you know, design analysis. Program management, do you feel that everything is robust enough to sort of contemplate and capture, you know, any potential, you know, overruns or challenges. So you, you kind of don't get into this, you know, sort of persistent negative EACs. Yeah, I'll start out looking our way in, but Michael, I mean, we have a very robust bid review process. You know, we have a, over the last handful of years, we built out a very strong business development team that works very closely with program management and supply chain to really understand the program and what's required.

Speaker Change: Got it and then just one more more broadly on that not to hone and directly on that that negative EAC, but clearly you're winning more defense.

Speaker Change: Space work and presumably those programs come with a lot more risk I mean.

Speaker Change: You look at your bidding process contracting terms.

Speaker Change: <unk> analysis program management do you feel that everything is robust enough.

Speaker Change: Sort of contemplate and capture any any potential.

Speaker Change: Overruns or challenges. So you kind of don't get into this sort of persistent negative EAC.

Rob: Yeah, I'll start, and I'll let Gunnar weigh in. But Michael, I mean, we have a very robust bid review process. You know, we have, over the last handful of years, built out a very strong business development team that works very closely with program management and supply chain to really understand the program and what's required. I mean, we've walked away from a number of potential opportunities just because the economics don't pan out and the risk is too high.

Speaker Change: Yeah, I'll start and I'll look in our land, but Michael I mean, we have a very robust bid review process.

Speaker Change: We have oh.

Speaker Change: Over the last handful of years, we've built out a very strong business development team that works very closely with program management.

Speaker Change: In supply chain to.

Speaker Change: To really understand the program and what's required.

Rob: I mean, we've walked away from a number of potential opportunities, you know, just given the economics don't pan out and the risk is too high. So, you know, what we're experiencing this quarter is a, you know, very significant ramp up on very large programs in a very difficult labor market. So that's, you know, really the largest contributor to the EACs that you're seeing. You know, if you take out just a couple of programs, the rest of the programs net net have been fairly neutral. So we feel overall very, very good about our review process and that type of work that will take.

Speaker Change: I mean, we've walked away from a number of.

Speaker Change: Potential opportunities just given the economics don't Pan out in the risk is too high so.

Rob: So, you know, what we're experiencing this quarter is a very significant ramp-up on very large programs in a very difficult labor market. So, that's really the largest contributor to the EAC that you're seeing. If you take out just a couple of programs, the rest of the programs, net net, have been fairly neutral. So, we feel overall very, very good about our review process and that type of work that we'll take, as Gunnar mentioned, we're going to continue to focus on our 3D woven technology in particular and focus on opportunities, but you're right. I mean, you know, and any firm fixed price contract. You know, the risk and opportunity are related to supply chain, labor, you name it, right? It has to be taken into account when you price.

Speaker Change: What we're experiencing this quarter.

Speaker Change: <unk> is a very significant ramp ups on very large programs in a very difficult labor market.

Speaker Change: Thats really the largest contributor to the EAC that youre seeing.

Speaker Change: You take out just a couple of programs the rest of the programs net net have been fairly neutral.

Speaker Change: So we feel overall very very good about our review process and that type of work that will take.

Gunnar Kleveland: As Gunnar mentioned, you know, we're going to continue to focus on our 3D woven technology in particular and, you know, focus on opportunities. But you're right. I mean, you know, in any firm fixed price contract, you know, the risks and opportunities related to supply chain labor, you name it, right, have to be taken into account when you price. And, you know, contractually, you know, we feel that we've done a good job at protecting ourselves as much as we can. And, you know, we have a good team executing. I have a whole lot to say that we have, we have the opportunity to be selected.

Speaker Change: As <unk> mentioned, we're going to continue to focus on our <unk> woven technology in particular and focus on opportunities, but youre right I mean in any firm fixed price contract.

Speaker Change: The risks and opportunities related to supply chain labor.

Speaker Change: You name it I have to be taken into account when you price.

Speaker Change: And contractually.

Speaker Change: We feel that we've done a good job of protecting ourselves as much as we can and.

Speaker Change: We have a good team executing.

Speaker Change: Yes.

Speaker Change: Is that we have we have the opportunity to be selective and so we will select the programs.

Gunnar Kleveland: And so we'll select the programs that makes the most sense for us. And I have to emphasize the ability of this team to execute is great. And so we're going through a significant ramp, and we're seeing some effects of that. That ramp was the beginning of this year. We're continuing to ramp up through the end of the year. We're adding new programs. Some of the new programs are added at our various facilities, which help us disperse the risk.

Speaker Change: Makes the most sense for us.

Speaker Change: <unk>.

Speaker Change: And.

Gunnar Kleveland: I have to emphasize the ability of this team to execute. It's great.

Speaker Change: I have to emphasize the ability of this team to execute it's great. So well, we're going through a significant ramp and we're seeing some effects of that.

Gunnar Kleveland: So we're going through a significant ramp, and we're seeing some effects of that. That ramp was the beginning of this year, and we're continuing to ramp up through the end of the year. We're adding new programs. Some of the new programs are added at our various facilities, which help us disperse the risk. So I'm going to support Robe fully in that end.

Speaker Change: That ramp was the beginning of this year, we're continuing to ramp up through the end of the year, we're adding new programs. Some of the new programs are added at our various facilities, which help us.

Speaker Change: Disbursed to risk.

Michael Ciarmoli: So, I'm going to support Rob fully in that answer. Got it.

Speaker Change: <unk>.

Speaker Change: Support growth fully in that engine.

Michael Ciarmoli: Thanks, guys. Thank you, Michael.

Speaker Change: Got it thanks guys.

Michael: Thank you Michael.

Unknown Executive: There are no further questions at this time.

Mr. <unk>: There are no further questions at this time, Mr. <unk> I'll turn the call back over to you.

Gunnar Kleveland: Mr. Gunnar, Cleveland, I turn the call back over to you. Thank you. And thank you, everyone, for joining us on the call today. We appreciate your continued interest in Albany International.

Mr. <unk>: 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.

Unknown Executive: Thank you, and have a good day.

Unknown Executive: This concludes this conference call; you may now disconnect.

Speaker Change: This concludes today's conference call you may now disconnect.

Speaker Change: Okay.

Speaker Change: [music].