Q3 2024 Albany International Corp Earnings Call
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I would now like to hand, the conference over to your first speaker today.
JC <unk> VP Investor Relations and Treasurer. Please go ahead.
Thank you Brendan and good morning, everyone.
Welcome to Albany International third quarter 2024 earnings Conference call.
As a reminder for those listening on the call. Please refer to our press release issued last night.
Ailing our quarterly financial results.
Contained in the text to the relief to the notice regarding forward looking statements and the use of certain non-GAAP financial measures and their reconciliation to GAAP.
The
For the purposes of this conference call those same statements apply to our verbal remarks. This morning.
Today, we will make statements that are forward looking 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.
Please refer to both our earnings release of automotive turning 24, as well as our SEC filings, including our 10-K.
Good day and thank you for standing by.
Speaker Change: Now I will turn the call over to Golar, Cleveland, our president and CEO, who will provide opening remarks.
Golar Cleveland: Thank you Jason Good morning, and welcome everyone. Thank you for joining our third quarter earnings call.
I will provide an overview of our business performance, Rob will later discuss our final results in detail.
Golar Cleveland: I am pleased with overall results for the quarter as we focused on operational excellence evidenced by strong result, plus machine clothing.
Speaker Change: Our ability to generate free cash flow of $78 million year to date.
Furthermore, our balance sheet is very healthy.
Turning to the EAC adjustments announced earlier this month, we are addressing operational issues to stabilize production and to advance the ramp up of the programs at our Salt Lake facility.
Speaker Change: Our team is making good progress leveraging support from our other sites.
Machine clothing revenues at $183 million grew year over year, driven by our Heimbach acquisition, partially offset by publication grade globally and packaging in Europe.
In the third quarter engineered fabrics delivered year over year growth.
Overall, the industry is secular growth trends remain in place for packaging tissue and pulp.
In terms of geographies North America remains a strong contributor while Europe continues to demonstrate weakness.
Overall Asia is stable, except for China, which are experiencing some softness.
Our global order backlog remained stable.
Speaker Change: Turning to <unk>.
Our integration plan remains on track, we made progress on functional organizational.
Speaker Change: Integration this past quarter and the closing of our South Korea, and Russia. The UK facilities is largely complete.
<unk> has seen an impact from the overall weakness in Europe combined with the SAP implementation, which has delayed some sales into the fourth quarter.
In our engineered composite segment, we recorded revenues of $115 million and while our profitability was impacted by our previously announced EAC adjustments.
In our commercial markets, we have seen near term weakness in the leap and our other growing programs our defense business continues to grow.
Primarily on the CH 50, <unk> K and Jassem platforms that we have seen some near term reduction in the joint strike Fighter program. This year, we expect recovery in 2025 and beyond.
Our backlog is well over $1 billion and longer term, we continue to see growth in space and our other commercial programs.
With the lead program, we're monitoring the situation at Boeing but as previously announced at our second quarter earnings call and earlier. This month, we have twice lowered our 2024 production plan.
Speaker Change: We're working with a firm on our 2025 production plans and we'll share that with you when it is finalized as part of our overall 2025 guidance.
Speaker Change: Our long term fundamentals for the business remains strong and we have new operating leadership in place all of which gives me strong confidence in the future of this segment is.
It is important to note that the updated margin profile of the business remains well ahead of our peer group.
Overall, our business fundamentals remain solid and I have my team in place we have Chris stone as a new leader at Albany engineered composites, Chris brings strong experience disciplined and strategic agility to the segments, which will support our strong growth projections.
And Albert in machine clothing, Camaro Stein took over leadership after several years of being groomed to the role and we will take his industry experience and strong business development capability into shaping the future of our machine clothing segment.
Speaker Change: As disclosed earlier due to the common materials science of our businesses, Rob Hansen was appointed CTO and is leading our overall innovation and R&D.
In order to capitalize on our significant investment in R&D. We recently hired Paul wants to lead our new business ventures, Paul has experienced from Boeing and Textron and will take new products through our gated process for addition to our businesses.
With all this change in momentum we also plan on hosting an investor day in the spring of 2025 and showcase the plans for the next five year period, and give analysts and investors the opportunity to hear directly from our new management team.
With that I'll hand, it over to Rob to provide more details on the quarters Rob.
Thank you <unk> and good morning, everyone I will review, our third quarter results and then provide our outlook for the balance of the year.
Validated net sales came in at $298 million up six 1% from the third quarter of last year.
Machine clothing, net sales of $183 million increased nine 9% versus the third quarter of the prior year driven by Heimbach.
Speaker Change: North American comparable sales were higher year over year and reflect the strength in that market. However, we were negatively impacted by continued weakness in Europe and mixed markets in Asia.
The SAP implementation of Heinbach has also provided a near term headwind as we transition to our new systems.
Organic sales for machine clothing for the period declined 1% year over year, largely due to <unk> from the SAP implementation.
AUC net sales of $115 million were largely flat versus the third quarter of 2023 on a GAAP basis inclusive of $16 million negative top line impact from the EAC adjustments in the quarters.
We experienced growth in our space and emerging platforms offset by lower sales in <unk> and.
Speaker Change: <unk> CH 53 K.
I wanted to highlight that excluding the cumulative catch up impact our underlying sales are CH 53 chain program increased as we work towards ramping production to meet our customers' needs.
Speaker Change: Consolidated gross profit was $90 million down from $102 million in the prior year driven by the EAC cumulative catch up adjustment of $22 million, excluding the EAC adjustment our gross profit for the quarter would have increased to $112 million with a margin of approximately 36% in.
Speaker Change: In line with last year's results.
Speaker Change: <unk> net sales came in at 298 million up six 1% from the third quarter of last year.
Machine clothing gross margin increased from 47, 6% in the third quarter.
Speaker Change: Compared to 48% I'm, sorry increased in the third quarter of 2020.
Speaker Change: <unk> clothing, net sales of $183 million increased nine 9% versus the third quarter of the prior year driven by heimbach nor.
Speaker Change: 3% to 48, 6% in 2024, marking the first year over year improvement since the <unk> acquisition.
Speaker Change: North American comparable sales were higher year over year and reflect the strength in that market. However, we were negatively impacted by continued weakness in Europe and mixed markets in Asia.
The margin increase was primarily driven by reduced input costs.
Excluding heimbach machine clothing gross margins increased approximately 270 basis points to 53, 4%.
Speaker Change: The SAP implementation of Heinbach has also provided a near term headwind as we transition to our new systems.
Speaker Change: <unk> continued excellent execution.
Speaker Change: Organic sales for machine clothing for the period declined 1% year over year largely due to <unk>.
We continue to make progress on our Ambac immigration and are on track to meet our long term synergy targets.
Speaker Change: Implementation.
AUC gross margin decrease from 19, 7% of third quarter of 2023 to one 3% driven by EAC adjustments that are detailed previously has been to $22 million EAC cumulative adjustment aac's gross margin for the quarter would be 18, 2%, a 150 basis point reduction from the prior year.
Speaker Change: <unk> net sales of $115 million were largely flat versus the third quarter of 2023 on a GAAP basis inclusive of a $16 million negative top line impact from the EAC adjustments in the quarter.
Speaker Change: We experienced growth in our space and emerging platforms offset by lower sales in <unk> and CH 53 K.
Net R&D expenses increased $1 million in the third quarter versus the prior year remaining at approximately 4% of revenue.
Speaker Change: I wanted to highlight that excluding the cumulative catch up impact our underlying sales are CH 53 program increased as we work towards ramping production to meet our customers' needs.
Speaker Change: SG&A expenses for the quarter were essentially flat however, as a percent of revenue SG&A has decreased from 18, 5% to 17, 5%.
Consolidated gross profit was $90 million down from $102 million in the prior year driven by the EAC cumulative catch up adjustment of 22 million.
Corporate expenses decreased half a million dollars versus the prior year to $14 $3 million.
Speaker Change: The EAC adjustment our gross profit for the quarter would have increased to $112 million with a margin of approximately 36% in.
The effective tax rate for the quarter was six 6% versus 25, 2% in the prior year, mainly due to favorable discrete tax adjustments.
Speaker Change: In line with last year's results.
Discrete tax method is mostly attributable to the true about the prior year estimated taxes and the release of a valuation allowance in the non U S jurisdictions due to positive evidence, indicating that a full valuation allowance was no longer required.
GAAP net income attributable to the company for the quarter was $18 million compared to $27 million last year, the reduction largely due to the EAC adjustments, which negatively impacted net income by $17 million.
Speaker Change: Yes.
GAAP diluted EPS was <unk> 57 per share in this quarter versus 87 in the same period last year.
After adjustments primarily related to the <unk> acquisition and other restructuring activities as detailed in our non-GAAP reconciliation. The adjusted diluted EPS was <unk> 80, <unk> versus $1 two in the same period last year.
Our EAC cumulative adjustments negatively impacted our third quarter diluted EPS by <unk> 55 per share.
Please note that our third quarter EPS also benefited from the timing of certain operating expenses, which we expect to occur in the fourth quarter.
Consolidated adjusted EBITDA was $54 million for the third quarter versus $65 million in the prior year period.
Machine clothing, adjusted EBITDA, including Heinbach was $64 million, an increase of 12% versus the prior year. Adjusted EBITDA margins were 35, 2% versus 34, 5% the prior year with the increase reflecting improved operations across the country.
Speaker Change: Yeah.
<unk> adjusted EBITDA was $4 million as compared to $22 million in the prior year period, adjusted EBITDA margin at AAC was two 1% of sales versus 19, 2% in the prior year.
Aac's adjusted EBITDA, excluding the EAC cumulative adjustments would have been $26 million or 19, 8% of sales.
During the third quarter free cash flow was $32 million with positive operating cash flow of 47 million offset by capital expenditures of $15 million. This brings our year to date free cash flow to $78 million versus $25 million in the prior year.
Our balance sheet remains strong with a cash balance of over $127 million and $440 million of borrowing capacity under our committed credit facility net leverages below one turn.
Speaker Change: Turning to our outlook for the balance of 2024, we are tightening our guidance for the balance of the year relative to the guide provided earlier than what we.
Speaker Change: We have narrowed our revenue guidance for both segments effectively leaving our mid point similar to the guide we provided earlier this month, our consolidated adjusted EBITDA guidance is slightly higher than our prior guide and has also been narrowed.
It should be pointed out that our full year AUC EBITDA guide translates to high teen margins for the fourth quarter.
Speaker Change: Reflective of the underlying strength of the business.
The midpoint of our adjusted EPS guidance is $3 25.
Speaker Change: <unk> increase from the prior guide.
We plan on providing full year 2025 guidance when we announce our year end results. We will also provide longer term guidance when we host our Investor Day next spring.
Now I'd like to turn the call open for questions.
Speaker Change: Thank you.
At this time, we will conduct a question and answer session.
As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Standby, while we compile the Q&A roster.
Speaker Change: Yeah.
Speaker Change: Our first question comes from the line of Peter <unk> with Baird. Your line is now open.
Yes, thanks, good morning, Rob.
Rob Hansen: Hey, good.
Give us your latest latest updated thoughts on on one the Gulfstream contract that you talked about.
Speaker Change: Earlier this month, just kind of how that progresses from here and what's the latest and how does how do we think about kind of the revenue for next year.
Speaker Change: There is no.
Speaker Change: You'll change.
Speaker Change: Unlike contract or performance since our.
Call a month ago, we're putting effort.
Speaker Change: The program with.
The team that is their engineering and working with Gulfstream to to get to the right.
Speaker Change: And deliver.
Apart with less hours than we do today. So the effort is there, but theres no really not really an update I don't expect.
Anything to impact our revenues for the program next year.
Speaker Change: Okay.
That's helpful and then in your in your kind of I guess, what you can say about the classified work business that you've been winning.
How does that how does that look in terms of.
Our revenue opportunity when we think about.
Speaker Change: Next year and beyond I know, you'll probably give a lot of detail next spring at your Investor day, but what's going on in the defense classified world for you guys.
We are very active.
And on the defense side.
And also with some commercial opportunities.
Speaker Change: I'm not going to get into details there and we're not announcing any specific deals.
Speaker Change: This quarter.
Speaker Change: But.
Speaker Change: And Mark I see a great opportunity for us going forward the buildup of our backlog over the last.
Three quarters is indicative I think to what we're doing.
Mark: Okay I appreciate it and just one quick one Rob.
Speaker Change: Your guidance for.
Mark: EBITDA for the year kind of obviously implies a nice step up.
In the fourth quarter can you talk a little bit about some of the moving parts, there and the confidence level around around that that EBITDA.
Speaker Change: Sure.
Rob: We have a fairly high confidence level.
Speaker Change: And our guide, especially considering a R or two months out from finishing the year.
Speaker Change: What we've seen is.
Speaker Change: Really good.
The increase in volume and some of our more higher margin areas as well.
Expect to see continued growth in the fourth quarter.
We are controlling expenses as needed so overall.
Certainly with Chris on Board and it teams focus on turning things that Salt Lake we feel we feel good about the guidance the implied margin range as some trades that the map Peter is 17, 5% for.
Speaker Change: For the fourth quarter estimate point of our AAC guide and that.
Speaker Change: In.
Speaker Change: And on the defense side.
It's a good business. So we feel good about that to grow oil.
Speaker Change: And also with some commercial opportunities.
Speaker Change: I appreciate that color I'll jump back in queue. Thanks.
Speaker Change: I'm not going to get get into details there and we're not announcing any specific deals. This.
Thank you so much.
This quarter.
For a moment Brian next question. Please.
Speaker Change: But.
Speaker Change: And Mark I see see great opportunity for us going forward the buildup of our backlog over the last.
Speaker Change: Okay.
Our next question comes from the line of Michael <unk> with <unk> Securities. Your line is now open.
Speaker Change: Three quarters is indicative I think to what we're doing.
Hey, good morning, guys. Thanks for taking my question.
Okay I appreciate it and just one quick one Rob.
Speaker Change: Hey, Rob just hey, just.
Just to stay on Peter's last question I mean 17, 5% is good but I mean these margins are trending down.
Speaker Change: Your guidance for.
Speaker Change: <unk> EBITDA for the year kind of obviously implies a nice step up.
Speaker Change: In the fourth quarter can you talk a little bit about some of the moving parts, there and the confidence level around around that that EBITDA.
How should we think about the longer term trajectory.
Speaker Change: Youre doing more defense classified work presumably.
Speaker Change: Sure.
That's first of a kind.
Speaker Change: Yes, we have.
Products are structures, which always inevitably are going to carry design development engineering risk. So.
Speaker Change: Fairly high confidence level.
Speaker Change: And our guide, especially considering where or two months out from finishing the year.
How can we be confident in these margins on a on a go forward basis.
Speaker Change: What we've seen is.
Speaker Change: Really good.
Speaker Change: The increase in volume and some of our more higher margin areas as well.
So I mean of course once once we will get the 25 guide when we announce our year end results and we're planning an investor day, but my.
Speaker Change: Expect to see continued growth in the fourth quarter.
We are controlling expenses as needed so overall.
Speaker Change: Mike I think what should give us a lot of confidence is a lot of areas, where we're seeing good levels of growth are at higher margin programs, especially on the commercial and.
Certainly with Chris on Board and it teams focus on turning things that Salt Lake, we feel we feel good about that.
Speaker Change: Kind of emerging or advance our mobility platforms.
Speaker Change: The implied margin range as I'm sure you did the math Peter is 17, 5% for.
Speaker Change: And space. So those are very good areas for us and you're absolutely right.
Speaker Change: For the fourth quarter and estimate point of our AUC Guide and.
We definitely have a focus on some defense work, which.
Speaker Change: It's a good business. So we feel good about the profile.
It does provide in the right contract setting really good margin opportunity and predict and visibility. So we feel really good about the blend I mean, we're definitely looking to have.
I appreciate that color I'll jump back in queue. Thanks.
Speaker Change: Thank you so much.
Visibility given our strong backlog on what the margin profile should look like and it's going to come down to execution.
To your point, Mike on the commercial and space and other programs, we need to execute and we're <unk>.
Speaker Change: Definitely feeling good about where we're situated going forward.
Are these classified or are they cost plus initially or did you bid anything into more high risk firm fixed price development for because I would think if it's cost plus that would be a little dilutive as you kind of go through the my first.
Yeah, I mean, Michael I mean, when we're looking at these development programs.
We're very careful about the amount of risk we are gaining share with our customers.
We will typically look for some level of protection. So I don't think we're putting ourselves in a very significant risk on these development programs.
Speaker Change: Some others.
Speaker Change: Okay.
Fair and then just shifting gears to leap.
The output has been revised down now.
Down 10% I mean, that's the third time can you talk to maybe the.
The ramp trajectory I mean, I know youre not going to give 25 guidance, but it seems like the overall ramp there is going to be lower than planned and I mean can you give us any sense of what what kind of inventory in the channel you might have.
So I think there might be at least 200 ship sets based on kind of if you were tracking pardon me with SaaS brand and how many revisions based on this year. So.
Any color on the leap program you can give us.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: We're comfortable with where we're at 40 year and we are working with.
Speaker Change: Ron.
Speaker Change: Our 2025 plan and there is there is a balance there.
Our reductions have fit with where.
Speaker Change: Subprime is.
Speaker Change: And we'll continue to do that so type relationship.
We also know that there is growth in the future.
Speaker Change: We can't pull back too far.
And not be able to do the wrap up.
So that's part of the balance as well.
Speaker Change: We're not going to.
Well give guidance for next year, but.
You can imagine that there is a balance there between.
Speaker Change: Maintaining of the capability and the ramp up as well as minimizing the inventory.
Mike and just one other thing that kind of keep in mind, when we provided our leap guide for the year.
Speaker Change: We were holding flat and that was against a backdrop of a 25% expected increase at the beginning of the year and obviously thats been ratcheted down as the situation at Boeing has unfolded during the year, but the relative impact to us relative to those expecting a 25% increases with much more modest we have taken our estimates down.
But not and if you look at <unk>. Most recent earnings release, they were very clear to state that they understand the balance with their supply chain.
The long term program.
Speaker Change: Is in excellent shape. The backlog is there they want to be very careful on that.
Damage to the supply chain of what's where we are.
Speaker Change: A very important part of that.
Okay Fair is the $600 million and <unk> revenues in 2006.
Mike: Yeah, Mike.
We'll be providing long term guidance when we come out with our Investor day.
So, let's let's wait until then.
Sure. Thanks, Scott Good question our question.
Mike: Yes.
Speaker Change: Okay.
Thank you so much one moment for our next question. Please.
Our next question comes from the line of Jordan.
My honest with Bank of America. Your line is now open.
Hey, good morning, Thanks for taking the question.
Speaker Change: Again looking long term.
Good morning, I appreciate you won't give guidance on it now but on the 77 energy.
Speaker Change: <unk> how are you guys thinking about the programs given.
Speaker Change: We've seen the softness on the Triple seven X just got delayed.
Speaker Change: Presumably those engines will also have an impact.
Speaker Change: Yeah.
Speaker Change: So 787, we expect.
Speaker Change: Growth.
So they are not affected by the strike and there is demand there. So we believe that Thats a good program going into the into next year.
Speaker Change: There is a delay on Nymex.
There is no no impact this year.
I think for next year as this development and the continued development of the engine.
Speaker Change: Yes.
Speaker Change: <unk> impact.
Speaker Change: Sure.
Speaker Change: Got it.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Thank you John.
Speaker Change: Thank you so much while I'm on the phone next question. Please.
Our next question comes from the line of <unk> <unk>.
Speaker Change: Telco.
With J P. Morgan your line is now open.
How this was kicking the soccer telco on for Steve Tusa. Thanks for taking my question.
Speaker Change: My question is.
Good morning. My first question is on free cash flow year to date free cash flow conversion has.
Speaker Change: Improved over last year.
But how should we think about conversion in 2025 and do you have any color on how it is by business.
It does continue to be a user of cash versus diesel generator.
Speaker Change: Sure.
Great question. So, yes, so year to date conversion ratio is about 110% watch.
Speaker Change: Certainly probably a bit higher than we would expect over a very long term cycle.
But we are focused on it and the cash flow has become a very critical focal area for us because thats.
What's going to drive our future growth.
So as it relates to the business.
Do expect AUC they were significant users of free cash flow capital last year, we're seeing some of that come off this year as we are better managing our inventory and working capital balances at that business, but also at machine clothing.
Got it awesome. Thank you.
Speaker Change: I think going forward.
Speaker Change: <unk>.
And the aerospace side cash flow will tend to be a bit more volatile depending on the types of programs that we sign ups markets. Typically early stage programs are a user of cash so so but that's a balance that we're on.
Thank you Jordan.
Thank you so much while I'm on the final question. Please.
Working on I think what you should expect.
Our next question comes from alumni of Chi.
Speaker Change: From Albany consolidated as continued strong cash flow generation as we go out into the future.
Speaker Change: <unk>.
Speaker Change: Telco.
Okay, great. Thanks, and then shifting to and CE and.
With J P. Morgan your line is now open.
Hi, This is tigran Osaka, Tokyo on for Steve Tusa, Thanks for taking my question.
Margins were stronger than we had expected and you attributed it to operational execution, but can you elaborate on that.
My first question is on good morning. My first question is on free cash flow year to date, the free cash flow conversion has pretty good improved over last year, but how should we think about conversion in 2025 and do you have any color on how it is by business.
Speaker Change: And what's the right run way to think about as we head into 2025.
Speaker Change: Well I can start with that.
Speaker Change: I think it reflects the efforts that we're doing with the integration.
It's not only affecting the improvements that we're getting from.
There's a C continue to be a user of cash versus a generator.
That you see at <unk>, but also at the core our core business and it's also just excellent execution.
Speaker Change: Sure.
Great question. So yeah, the year to date conversion ratio is about 110% watch.
Cost management.
Speaker Change: Certainly.
Speaker Change: By the team.
I'll be a bit higher than we would expect over a very long term cycle.
Speaker Change: And.
Little bit of an uncertain.
So, but we are focused on that and the cash flow has become a very critical focal area for us because thats you know.
Todd: Todd So kudos.
Speaker Change: Kudos kudos to the team.
Are performing at that level.
What's going to drive our future growth.
Speaker Change: Yes.
So as it relates to the business.
Speaker Change: Okay. Thank you.
Do expect AUC they were significant users of free cash flow and our capital last year, we're seeing some of that come off this year as we are better managing our inventory and working capital balances at that business, but also at machine clothing. So.
Speaker Change: Yeah.
Thank you so much and as a reminder, everyone to ask a question you will need to press star one one on your telephone and wait for your name to be announced so let's draw. Your question. Please press star one again.
Speaker Change: I think going forward.
One more on the farm next question.
In the aerospace side cash flow will tend to be a bit more volatile depending on the types of programs that we sign up markets. Typically early stage programs are a user of cash. So so but that's a balance that we're working on I think what you should expect.
Our next question comes from the line of Tom O'connor with CD, calling your name. Your line is now open.
Speaker Change: I'm from Albany consolidated as continued strong cash flow generation as we go out into the future.
Tom O'connor: Yeah, Hey, Hey, guys, Jack Arizona for Dolphin today, Thanks for the question.
Speaker Change: Hi, Jack.
Hey, Rob just for leap hits.
Jack Arizona: I hate to go back to it but but just to be clear did you guys take production down incrementally more from your last update.
Because I think you guys called it down modestly in the last quarter.
Or maybe the 10 three update but.
GE took it down 10% now.
Just wanted to be clear for you guys for 'twenty four.
Yes, so we had a lower planned for the year than what was projected from for both.
So for LNG and then we took it down in the second quarter and we took it down again on the third of October we have not changed.
Changes since then.
Speaker Change: Okay and would you be willing to maybe quantify the sort of step change I think you guys put some numbers around it last quarter.
Speaker Change: Yes. It was it was very minimal I mean, we're talking maybe a few million dollars.
Speaker Change: Jack from the second quarter to the October 3rd call pretty pretty nominal.
Speaker Change: Okay.
Speaker Change: Alright.
Speaker Change: Okay, and then just F 35, I know maybe in your script you talked about you discussed some softness there.
Speaker Change: Vacations this year.
But I guess like moving forward does the Lockheed sort of delivery restart does that help you guys at all and I guess.
Speaker Change: How far away are you guys from that I think $80 million target you might have called out last investor day.
Wanted to kind of get the cadence.
Of the growth trajectory there. Thanks, so much.
We've seen a soft softness through the middle of this year and we expect that to come back starting into into next year for joint strike fighter.
Speaker Change: We are pretty far out in the supply chain here, so that does affect us.
Speaker Change: Maybe to a lesser degree.
Speaker Change: But but.
I expect the transport strike fighter numbers to be to be steady.
Into next year and in.
Speaker Change: Jack.
And we provided a view in 2022 on kind of what the potential loss for F 35, and we will certainly update that again at the Investor day, but we believe in the program long term the fundamentals remain intact.
The program the Lockheeds now that they've got the.
Tec Tech package, three and up and running.
That's all they are all positive signs that we're seeing right now on F 35.
Speaker Change: Awesome, Okay. Thanks, guys I appreciate it.
Thank you.
Speaker Change: Yeah.
So much for your question.
I am showing no further questions at this time I would now like to turn it back to garner Cleveland for closing remarks.
Thank you and thank you everyone for joining us on the call today. We appreciate your continued interest in Albany International.
And have a good day.
Thank you for your participation in today's conference.
Speaker Change: It does conclude the program you may now disconnect.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: [music].
Speaker Change: [music].
Good day, and thank you for standing by.
Welcome to the Albany International third quarter 2024 earnings call at this time, all participants are in a listen only mode.
Speaker Change: After the speaker's presentation, there will be a question answer session.
This month, we are addressing operational issues to stabilize production and that's the ramp up in a couple of programs at our Salt Lake facility.
Speaker Change: Our team is making good progress leveraging support from our other sites.
Machine clothing revenues at $183 million grew year over year, driven by our Heinbach acquisition, partially offset by publication grades globally and packaging in Europe.
In the third quarter engineered fabrics delivered year over year growth.
Overall, the industry is secular growth trends remain in place for packaging tissue and pulp.
Speaker Change: In terms of geographies North America remains a strong contributor while Europe continues to demonstrate weakness.
Overall Asia is stable, except for China, which experienced some softness.
Speaker Change: Our global order backlog remained stable.
Turning to <unk>.
Our integration plan remains on track, we made progress on functional organizational.
Integration this past quarter and the closing of our South Korea, and Russia, Dale UK facilities is largely complete.
<unk> has seen an impact from the overall weakness in Europe combined with the SAP implementation, which has delayed some sales into the fourth quarter.
In our engineered composites segment, we recorded revenues of $115 million and while our profitability was impacted by our previously announced EAC adjustments.
Speaker Change: In our commercial markets, we have seen near term weakness in the leap and our other Boeing programs, our defense business continues to grow.
Primarily on the CH 50, <unk> K and Jasmine platforms that we have seen some near term reduction in the joint strike Fighter program. This year, we expect recovery in 2025 and beyond.
Speaker Change: Backlog is well over $1 billion and longer term, we continue to see growth.
In space and our other commercial programs.
North American comparable sales were higher year over year and reflect the strength in that market. However, we were negatively impacted by continued weakness in Europe and mixed markets in Asia.
The SAP implementation of Heinbach has also provided a near term headwind as we transition to our new systems.
Organic sales for machine clothing for the period declined 1% year over year, largely due to sales noise from the SAP implementation.
<unk> net sales of $115 million were largely flat versus the third quarter of 2023 on a GAAP basis inclusive of $16 million negative top line impact from the EAC adjustments in the quarter.
We experienced growth in our space and emerging platforms offset by lower sales in <unk> and CH 53 K.
I wanted to highlight that excluding the cumulative catch up impact our underlying sales are CH 53 program increased as we work towards ramping production to meet our customers' needs.
Consolidated gross profit was $90 million down from $102 million in the prior year driven by the EAC cumulative catch up adjustment of 22 million.
The EAC adjustment our gross profit for the quarter would have increased to $112 million with a margin of approximately 36%.
Speaker Change: In line with last year's results.
Machine clothing gross margin increased from 47, 6% in the third quarter.
Compared to 48% I'm, sorry increased in the third quarter of 2020.
3% to 48, 6% in 2024, marking the first year over year improvement since the <unk> acquisition.
The margin increase was primarily driven by reduced input costs.
Adjusted EBITDA margins were 35, 2% versus 34, 5% the prior year with the increase reflecting improved operations across the path.
Speaker Change: <unk> adjusted EBITDA was $4 million as compared to $22 million in the prior year period, adjusted EBITDA margin at AUC was two 1% of sales versus 19, 2% in the prior year.
Speaker Change: Acs adjusted EBITDA, excluding the EAC cumulative adjustments would have been $26 million or 19, 8% of sales.
Speaker Change: During the third quarter free cash flow was $32 million with positive operating cash flow of 47 million offset by capital expenditures of $15 million. This brings our year to date free cash flow to $78 million versus $25 million in the prior year.
Our balance sheet remains strong with a cash balance of over a $127 million and $440 million of borrowing capacity under our committed credit facility.
Net leverages below one turn.
Speaker Change: Yeah.
Speaker Change: Turning to our outlook for the balance of 2024, we are tightening our guidance for the balance of the year relative to the guide provided earlier involved.
Speaker Change: We have narrowed our revenue guidance for both segments effectively leaving our mid point similar to the guide we provided earlier this month, our consolidated adjusted EBITDA guidance is slightly higher than our prior guide and has also been narrowed.
It should be pointed out that our full year AUC EBITDA guide translates to high teen margins for the fourth quarter.
Speaker Change: Reflective of the underlying strength of the business.
Speaker Change: The midpoint of our adjusted EPS guidance is $3 25.
Speaker Change: <unk> increase from the prior guide.
We plan on providing full year 2025 guidance when we announce our year end results. We will also provide longer term guidance when we host our Investor Day next spring.
Speaker Change: Now I'd like to turn the call open for questions.
Thank you.
At this time, we will conduct a question and answer session.
And our guide, especially considering where or two months out from finishing the year.
Speaker Change: What we've seen is.
Speaker Change: Really good.
The increase in volume and some of our more higher margin areas as well.
Expect to see continued growth in the fourth quarter.
We are controlling expenses as needed so overall.
Speaker Change: Certainly with Chris on Board and it teams focus on turning things that Salt Lake, we feel we feel good about that.
The implied margin range as I'm sure you did the math theaters 17, 5% for.
For the fourth quarter estimate point of our AUC guide and.
Speaker Change: It's a good business. So we feel good about the profile.
I appreciate that color I'll jump back in queue. Thanks.
Speaker Change: Thank you so much.
Hello, I'm almost Brian next question. Please.
Speaker Change: Yeah.
Our next question comes from the line of Michael Karmali was truly Securities. Your line is now open.
Hey, good morning, guys. Thanks for taking my question.
Sure Hey, Mike Hey, just to stay on Peter's last question I mean 17, 5% is good but I mean these margins are trending down.
How should we think about the longer term trajectory.
Youre doing more defense classified work presumably.
Speaker Change: First of a kind.
Speaker Change: <unk> structures, which always inevitably are going to carry design development and engineering risk. So.
How can we be confident these margins on a on a go forward basis.
Yes, so I mean of course once once we will get the 25 guide when we announce our year end results and we're planning an investor day, but Mike.
Mike I think what should give us a lot of confidence is a lot of areas, where we're seeing good levels of growth are in higher margin programs, especially on the commercial and.
Kind of emerging or advance our mobility platforms.
Speaker Change: And space. So those are very good areas for us and you're absolutely right.
We definitely have a focus on some defense work, which.
It does provide in the right contract setting really good margin opportunity and predict and visibility.
We feel really good about the blend I mean, we're definitely looking to have.
Speaker Change: Visibility given our strong backlog on what the margin profile should look like and it's going to come down to execution.
Speaker Change: To your point, Mike on the commercial and space and other programs, we need to execute and we're <unk>.
Definitely feeling good about where we're situated going forward.
Speaker Change: Are these.
Speaker Change: Classified or are they cost plus initially or did you did anything in the more high risk firm fixed price development or because I would think if it's cost plus that would be a little dilutive as you kind of go through them at first.
Yeah, I mean, Michael I mean, when we're looking at these development programs.
We're very careful about the amount of risk, we're going to share with our customers.
We will typically look for some level of self protection. So I don't think we're putting ourselves in a very significant risk on these development programs.
Speaker Change: Like some others so.
Speaker Change: Okay.
Fair and then just shifting gears to leap I mean.
Speaker Change: Output has been revised down now.
Down 10% I mean, that's the third time can you talk to maybe the.
The ramp trajectory I mean, I know youre not going to give 25 guidance, but it seems like the overall ramp there is going to be lower than planned and I mean can you give us any sense of what what kind of inventory in the channel you might have.
Speaker Change: So I think that might be at least 200 ship sets based on kind of if you were tracking pardon me with SaaS Brandon how many revisions based on this year, so any color on that.
Leap program, you can give us.
Speaker Change: Yeah.
Speaker Change: Okay.
We're comfortable with where we're at for the year and we are working with.
From our 2025 plan and there is there is a balance there.
Our reductions have fit with where.
So prime is.
And we'll continue to do that so type relationship.
Speaker Change: We also know that there is growth in the future.
We can't pull back too far.
And not be able to do the wrap up.
Speaker Change: So that's part of the balance as well.
Speaker Change: We're not going to.
Give guidance for next year, but.
You can imagine that there is a balance there between.
Maintaining of the capability and the ramp up as well as minimizing the inventory.
And Mike and just one other thing that kind of keep in mind, when we provided our elite guide for the year.
We're holding flat and that was against a backdrop of about 25% expected increase at the beginning of the year and obviously thats been ratcheted down as the situation at Boeing has unfolded during the year, but the relative impact to us relative to those expecting I was 25% increases was much more modest we have taken our estimates down.
Speaker Change: But not.
If you look at <unk>. Most recent earnings release, they were very clear to state that they understand the balance with their supply chain.
The long term program is in excellent shape. The backlog is there they want to be very careful on that.
Damage to the supply chain of voice.
A very important part of that.
Speaker Change: Okay.
$600 million in AUC revenues in 'twenty six.
Yeah, Mike.
We'll be providing long term guidance when we come out with our Investor day.
So, let's let's wait until then.
Okay. Thanks, guys. Good question our question.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Thank you so much.
Question. Please.
Our next question comes from the line of Jordan <unk> with Bank of America. Your line is now open.
Hey, good morning, Thanks for taking the question.
Again looking long term.
Alright I appreciate it.
Speaker Change: Give guidance on it now but on the 77 energy dynamics.
Speaker Change: Nx and ex how are you guys thinking about the programs given.
We've seen the softness on the 700 <unk> the Triple seven X just got delayed.
Presumably those engines will also have an impact.
Speaker Change: So 787, we expect.
Speaker Change: Growth.
So if they are not affected by the strike.
And there is demand there. So we believe that Thats a good program going into into next year.
There is a delay on my next.
Speaker Change: There is no no impact this year.
And I think for next year as business development and the continued development of the engine.
Speaker Change: Minimal impact.
Speaker Change: Sure.
Speaker Change: Got it awesome. Thank you.
Speaker Change: Let me turn.
Speaker Change: Thank you so much on the final question. Please.
Our next question comes from the line of <unk> <unk>.
Speaker Change: Telco.
With J P. Morgan your line is now open.
How this will kick in the second telco on for Steve Tusa. Thanks for taking my question.
Speaker Change: My question is.
Steve Tusa: My first question is on free cash flow year.
The free cash flow conversion has.
We had improved over last year.
Steve Tusa: But how should we think about conversion in 2025 and do you have any color on how it is by business does.
It does continue to be a user of cash versus a generator.
Speaker Change: Sure.
Speaker Change: Great question. So, yes, so year to date conversion ratio is about 110% watch.
Certainly probably a bit higher than we would expect over a very long term cycle.
But we are focused on that and the cash flow has become a very critical focal area for us because thats.
What's going to drive our future growth.
As it relates to the business.
We do expect AUC they were significant users of free cash flow capital last year, we're seeing some of that come off this year as we are better managing our inventory and working capital balances at that business, but also at machine clothing, So I think going forward.
Speaker Change:
Speaker Change: And the aerospace side cash flow will tend to be a bit more volatile depending on the types of programs that we sign up Mark is typically early stage programs are a user of cash. So so but that's a balance that we're working on I think what you should expect.
From Albany consolidated as continued strong cash flow generation as we go out into the future.
Steve Tusa: Okay, great. Thanks, and then shifting to ANSI and margins were stronger than we had expected and you attributed it to operational.
But can you elaborate on that.
And what's the right run rate I think about as we head into 2025.
Speaker Change: Yes.
Speaker Change: Start with I think.
It reflects the efforts that we're doing with the integration.
Not only affecting the improvements that we're getting from.
That you see at Heimbach, but also at the core our core business and it's also just excellent execution.
Speaker Change: Cost management.
Speaker Change: By the team.
Speaker Change: In.
Little bit of an uncertain uncertain.
Todd So kudos.
Kudos kudos to the team.
Are performing at that level.
Speaker Change: Yes.
Okay. Thank you.
Speaker Change: Yeah.
Thank you so much and as a reminder, everyone to ask a question you will need to press star one one on your telephone and wait for your name to be announced so let's draw. Your question. Please press star one again.
One moment for our next question.
Our next question comes from the line of Tom O'connor with CD, calling your name. Your line is now open.
Yeah, Hey, Hey, guys, Jack Arizona for Dolphin today, Thanks for the question.
Hi, Jack.
Hey, Rob just for leap hits.
Jack: I hate to go back to it but but just to be clear did you guys take production down incrementally more from your last update.
Because I think you guys called it down modestly in the last quarter.
Or maybe the 10 three update but.
Speaker Change: <unk> took it down 10% now.
Speaker Change: Just wanted to be clear for you guys for 'twenty four.
Speaker Change: Okay.
Speaker Change: Yes.
We had a lower planned for the year than what was projected from for both.
So for LNG and then we took it down in the second quarter and we took it down again on the third of October we have not changed.
Speaker Change: Changed it since then.
Okay and would you be willing to maybe quantify the sort of step change I think you guys put some numbers around it last quarter.
Yes. It was it was very minimal I mean, we're talking maybe a few million dollars.
Speaker Change: Jack from the second quarter to the October 3rd call.
Speaker Change: Pretty pretty nominal.
Speaker Change: Okay.
Speaker Change: Alright.
Speaker Change: Okay and then just at 35 I know maybe in your script you talked about you discussed some softness there expectations this year.
Speaker Change: But I guess like moving forward does the Lockheed sort of delivery restart does that help you guys at all and I guess.
So far away are you guys from that I think $80 million target you might have called out last investor day.
Speaker Change: Wanted to kind of get the cadence.
Speaker Change: Of the growth trajectory there. Thanks, so much.
We've seen a soft softness through the middle of this year and we expect that to come back starting into into next year for joint strike fighter.
We're pretty far out in the supply chain here, so that does affect us.
Maybe to a lesser degree.
Speaker Change: But.
Speaker Change: I expect the transport strike fighter numbers to be to be steady.
Speaker Change: Into next year right.
Speaker Change: Jack.
We provided a view in 2022.
The potential loss for F 35, and.
Certainly update that again at the Investor day, but we believe in the program long term the fundamentals remain intact.
The program the Lockheeds now that they've got the.
Speaker Change: Tec Tech packaged III up and running.
They are all positive signs that we're seeing right now on F 35.
Awesome, Okay. Thanks, guys I appreciate it.
Speaker Change: Thank you.
Speaker Change: Yeah.
Thank you so much for your question.
Speaker Change: Yeah.
I am showing no further questions at this time I would now.
Speaker Change: I would like to turn it back to garner Cleveland for closing remarks.
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.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.