Q4 2024 Albany International Corp Earnings Call
Ladies and gentlemen, thank you for standing by my name is statutory and I will be your conference operator today at this time I would like to welcome everyone to fourth quarter was 2024 hour battery International earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
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Speaker Change: Now I'd like to turn the conference over to Chi Ctrip Nanny, VP IR and Treasurer you may begin.
Speaker Change: Thank you Destiny and good morning, everyone welcome to Albany Internationals fourth quarter 2024 earnings Conference call.
Speaker Change: As a reminder for those listening on the call. Please refer to our press release issued last night detailing our quarterly financial results.
Speaker Change: Deemed an indexed other lease is a notice regarding our forward looking statements and the use of certain non-GAAP financial measures and their reconciliation to GAAP.
Speaker Change: For the purposes of this conference call those same statements apply to our remarks this morning.
Speaker Change: Today, we will make statements that are forward looking and contains a number of risks and uncertainties, which could cause actual results to differ from those expressed or implied.
Speaker Change: For a full discussion of these risks and uncertainties.
Speaker Change: Please refer to both our earnings release, our February 26, 225 at <unk>.
Speaker Change: Well as our SEC filings, including our 10-K.
Speaker Change: Now I will turn the call over to Gunnar Cleveland, President and CEO, who will provide opening remarks.
Speaker Change: Sure.
Thank you J C. Good morning, and welcome everyone. Thank you for joining our fourth quarter earnings call.
Speaker Change: I'll provide an overview of our business performance and Rob will later discuss our financial results in detail and then the outlook for 2025.
Speaker Change: We continue to perform well in both our businesses as evidenced by strong results at machine clothing, and ongoing operational progress, thereby new leadership and engineered composites.
Speaker Change: While we recognize additional EAC adjustments at AUC and the overall business fundamentals are strong and we expect higher revenues and improving profitability over the next several years.
Speaker Change: For the full year, we reported record revenues of nearly one and a quarter billion dollars driven by organic growth at AUC and the <unk> acquisition.
Speaker Change: With our focus on working capital and cash flow, we generated free cash flow of $59 million in the fourth quarter and $137 million for the full year underlying the strength of the combined businesses. Our balance sheet continues to be in excellent shape, giving us the ability to execute our growth strategy.
Speaker Change: With our current and projected cash flow and strong balance sheet, we are able to return value to the shareholder as part of our capital allocation strategy.
Speaker Change: We have initiated our share repurchase program.
Speaker Change: In the fourth quarter of 2024, we repurchased $15 million of shares. The board has also authorized a new share repurchase program, which supersedes our current program and it's now up to $250 million.
Speaker Change: Turning to our businesses machine clothing revenues in the fourth quarter were slightly below same quarter last year due to a strong comparative period.
Speaker Change: Our focus in the second half of 2024 was to consolidate our operations and discontinuing unprofitable product lines, primarily at the Hy Bon business.
Speaker Change: This is part of the integration plan and while it leads to lower topline growth in the short term it improves our bottom line performance.
Speaker Change: In terms of grades packaging and publication were down year over year in the fourth quarter again, driven by strong comparisons to the prior year, but the long term trends remain positive, especially for packaging, our MSC product largest end market.
Speaker Change: <unk> pulp remained stable and we grew our sales in engineered fabrics, partially offset by publications.
Speaker Change: In terms of geographies North America continues to be a strong contributor while South America remains stable with slightly improving trends Europe was generally flat year over year, and we will be looking for some growth into 2025.
Speaker Change: Asia was also generally flat year over year with slight weakness in China, our global <unk> backlog backlog is stable.
Speaker Change: There is some consolidation in our paper customer base, and we're working with our customers through the transition as they move product to optimize their footprint.
Speaker Change: That time back our integration plan is on track, we have consolidated operations and streamlined our footprint the business as a complement to the legacy Albany company in both geography, and technology and we continue to sell the product using the heimbach Brad.
Speaker Change: Our cross functional integration process is progressing and we have made considerable improvement in <unk> working capital levels significantly contributing to our consolidated free cash flow results.
Speaker Change: Our exit run rate on synergies is strong and we're on track to meet our financial goals.
Overall paper machine clothing delivered excellent financial results and going forward, we forecast low single digit revenue growth prospects.
Speaker Change: In our engineered composite segment, we recorded revenues of $99 million impacted by additional EAC adjustments in the fourth quarter and lower leap revenues.
Speaker Change: The EAC adjustments were driven by the CH 53, K of the Gulfstream programs, we continue to make progress on the CH 53, K program, but needed further adjustments to our EAC due to learning curve and material challenges.
Speaker Change: Our new leadership team in Salt Lake City is establishing robust processes.
Speaker Change: Processes and has invested in training in the frontline leadership, enabling growth and learning curve improvements this year.
Speaker Change: <unk> is the large program and our operating <unk>.
Speaker Change: Operating plan is aligned with our customer and their projected growth rate.
Speaker Change: This will be a significant and profitable program for us well into the middle of next decade.
Speaker Change: After leap CH 50, <unk> will be our largest program in terms of revenue.
Speaker Change: For Gulfstream, we're also making progress on manufacturing the parts and I've been reduced volume exposure coming into 2025.
Speaker Change: We're growing more confident about space as an additional source of long term revenue in the quarter, we signed an LTA with a customer and anticipate solid growth from this and other customers in the medium and long term.
Speaker Change: In 2025 and the next several years, we also predict growth in advanced air mobility with both traditional composite structures as well as our proprietary three D woven technology.
Speaker Change: On leap, we continue to monitor the situation at Boeing and are taking a conservative approach and projecting lower volumes, both at leap and our other Boeing programs. As a result, we are projecting leap revenues of approximately $150 million for 2025.
Speaker Change: We remain ready with ample capacity to ramp up our production quickly as demand recovers, we work closely with suffer and monitor Airbus and Boeing recovery and are encouraged by some of the news from both Boeing and Airbus.
Speaker Change: Okay.
Speaker Change: Our defense business is positioned to grow with <unk> and Laura Some general is stable and with significant growth potential in the medium term.
Hypersonic <unk> is developing with multiple opportunities and we have invested internal funds supplemented by customer funding in this technology with our near net shape part approach and investments in capability and capacity hypersonic parts will be a significant growth engine in the medium and long term.
Speaker Change: During the quarter, we were awarded long term contracts for both existing and new customers of $138 million.
Speaker Change: As these awards translate into purchase orders that will be added to our existing AUC backlog, which at year end was $1 4 billion.
Speaker Change: This is backlog that does not include leap volumes beyond the current year and only relates to our other ADC platforms.
Speaker Change: This does provide us visibility and confidence into our business opportunity performance beyond 2025.
Speaker Change: Overall 2024, it was a year of integration and optimization at machine clothing, while at AAC, We did a reset and took several actions to stabilize and improve operations to enable future growth and improving profitability with all the opportunities for growth at AUC. This is a necessary and critical action that will pay major dividends.
Speaker Change: For our growth ahead.
Speaker Change: We exited 2024 with one of our best years on record for cash generation with a stronger operational structure and have returned cash to shareholders through our share repurchase program and dividends.
Speaker Change: In 2025, we will strengthen our foundation to deliver future growth material Sciences, and foundation of our businesses and our ability to continuously develop our R&R materials and weaving technologies give us an enviable position in our markets.
Speaker Change: And we will continue to focus on cash and capital deployment and strong business performance at.
Speaker Change: At AMC the integration of <unk> remains center stage, we recently announced that we are consolidating two facilities and we are also divesting a noncore business in Italy at AUC. The team is taking major steps to improve the operations as well as adding additional top talent and operations planning and supply chain management.
Speaker Change: Enabling improvements in systems processes and workforce.
Speaker Change: All of this realignment that effort sets us up for much healthier and successful next growth spurt.
Speaker Change: As we grow and strengthen the business. This year, we will also consolidate all headquarter employees in a new office in Portsmouth, New Hampshire to get the benefit of having the team together as well as improved access to talent for key corporate roles.
Speaker Change: Sure.
Speaker Change: We have been moving midyear 2025, and we will close down our Albany, New York Office, while making the current Rochester office available to AAC that transition will take approximately one year.
Speaker Change: Additionally, we are overhauling our executive compensation program last year. We included cash performance in the short term incentive compensation for 2025, we will change the long term incentive compensation from 100% EBITDA to one third total shareholder return one third return on invested capital.
Speaker Change: And one third EBITDA. We believe these actions will further align incentive compensation with long term value creation.
Speaker Change: Okay.
Speaker Change: Looking forward, we are in excellent financial position with strong cash flow and a supportive balance sheet to drive shareholder value and achieve our long term objectives.
Speaker Change: While discrete items have impacted our short term run rate and outlook. We have completed the vast majority of the hard work to address the issues are heimbach integration is well underway with key actions announced and we have rebalanced our program outlook at AUC to better reflect our current conditions.
Speaker Change: These actions combined with the enhancements we've made to our leadership team over the past 12 months position us to focus on our long term plan in the coming months, we will share more details with specific targets, but we are focused on these three primary goals.
Speaker Change: First.
Speaker Change: With much of the integration activities behind US we're focused on growth in our machine clothing segment over the next five years. We believe there is opportunity for growth with our technology product and manufacturing leadership.
Speaker Change: We are fortunate to have won a wide range of programs at AUC aircraft structures engine and with our proprietary material science advantage takes.
Speaker Change: Taken together with the refinements, we have made to key programs in 2024 dispositions us for robust segment growth on the top line with compelling contribution margins over the long term.
Speaker Change: And third through a disciplined capital allocation program, we can enhance our overall growth rate through additional R&D investments in inorganic initiatives we.
Speaker Change: We have $1 billion in dry powder, and we will take advantage of both organic and inorganic opportunities.
Speaker Change: I would also like to take this opportunity to thank our investors for their support through 2024 as well as our employees for their hard work and dedication.
Rob: With that I'll now hand, it over to Rob to provide more details on the quarter.
Rob: Thank you <unk> and good morning, everyone.
Rob: Ill review, our fourth quarter results and then provide our outlook for 2025.
Rob: Before reviewing our fourth quarter results I wanted to discuss an important change that we made in the fourth quarter regarding how we report our global information cost.
Rob: Previously, our global information system costs or Gis.
Rob: So in an aggregate as part of corporate SG&A expenses, and we are now reporting those costs at the segment level.
Rob: It is our view that this better reflects the performance of the individual segments.
Rob: It is how we will review segment performance on a go forward basis.
Rob: Our consolidated EPS remains unchanged and the individual gross margins for the individual segments remain the same but our adjusted EBITDA margins for the individual segments will be impacted by this allocation.
Rob: Q4, we will discuss margins with and without the allocation for comparison purposes, but starting in 2025, our conversation will focus on our margins, including Gis cost.
Rob: Consolidated net sales came in at $287 million down from $324 million in the fourth quarter last year, primarily driven by lower revenue at AUC, which we will discuss further.
Rob: Machine clothing, net sales of $188 million decreased one 9% versus the fourth quarter of the prior year, primarily driven by a comparison to a strong fourth quarter and 2023 and the packaging and publication grades in North America offset with increased sales in engineered fabrics.
Rob: AUC net sales of $99 million were lower versus the $132 million in the fourth quarter of 2023 on a GAAP basis.
Rob: Similarly, due to a $14 million negative top line impact from the EAC adjustments in the quarter, coupled with lower revenues of $10 million and lower 787 volumes of $2 million. However, we continued to experience growth in our space in advanced air mobility platforms.
Rob: Of the $15 million in negative EAC adjustments recognized in the quarter $9 million related to the CH 53, K program and $3 million related to Gulfstream with the remaining amount across a number of programs.
Rob: Consolidated gross profit was $90 million down from $120 million in the prior year driven by the EAC cumulative catch up adjustment of $15 million and $10 million in machine clothing due to lower gross margins.
Speaker Change: And box.
Speaker Change: Machine clothing gross margin decreased from 48, 8% in the fourth quarter of 2023.
Speaker Change: 244, 4% in 2024, largely due to lower gross margins at heimbach.
Speaker Change: AUC gross margins decreased from 20% in the fourth quarter of 2023 to six 8%, primarily driven by EAC adjustments that we detailed previously.
Speaker Change: Net R&D expenses remained relatively flat in the fourth quarter versus the prior year and were at 4% of revenue.
Speaker Change: Consolidated SG&A expenses as a percentage of revenue for the quarter were down from 29% in the prior year to 16, 9% due to reduced wages and benefits lower incentive compensation and foreign exchange impacts.
Speaker Change: Corporate expenses adjusted for Gis expenses allocated to the divisions were at $10 million or three 4% of revenue versus $7 million or two 2% of revenue in the prior year.
Speaker Change: The effective tax rate for the quarter was 28% versus 22, 6% in the prior year.
Speaker Change: Mainly due to a shift in taxable income to higher rate jurisdictions as well as due to less favorable discrete tax adjustments as compared to the prior year.
Speaker Change: GAAP net income attributable to the company for the quarter was $18 million compared to $30 million last year, the reduction largely due to the EAC adjustments.
Speaker Change: GAAP diluted EPS was <unk> 56.
Speaker Change: Our share in this quarter versus 97 Saint.
Speaker Change: The same period last year.
Speaker Change: After adjustments primarily related to <unk> acquisition and other restructuring activities as detailed in our non-GAAP reconciliation.
Speaker Change: The adjusted diluted EPS was <unk> 58.
Speaker Change: Versus $1 22 in the same period last year.
Speaker Change: Consolidated adjusted EBITDA was $60 million for the fourth quarter versus $75 million in the prior year period.
Speaker Change: Machine clothing, adjusted EBITDA, including Gis costs was $54 million, a decrease of $8 six versus the prior year adjusted EBITDA margins were 28, 5% versus 36% in the prior year, excluding Gis cost machine clothing, adjusted EBITDA margins were 33% for the current.
Speaker Change: Fourth quarter as compared to 32, 1% in the prior year.
Speaker Change: AUC adjusted EBITDA, including Gis cost.
Speaker Change: It was $6 million as compared to $24 million in the prior year period adjust.
Speaker Change: Adjusted EBITDA margins at AAC, or six 1% of sales versus 18% in the prior year.
Speaker Change: Excluding Gis cost AAC adjusted margins were nine 3% for the fourth quarter as compared to 25% in the part of the year.
Speaker Change: During the quarter free cash flow was $59 million with positive operating cash flow of 78 million offset by capital expenditures of $19 million.
This brings our year to date free cash flow to $137 million versus $64 million in the prior year.
Speaker Change: Our balance sheet remains strong with a cash balance of over $115 million and $482 million of borrowing capacity under our committed credit facility.
Speaker Change: Before discussing our outlook for 2025, I want to highlight that our outlook does not reflect the costs associated with our headquarter consolidation, which are currently estimated to be between 6% and $8 million.
Speaker Change: The low end of our guidance reflects a weaker than expected economic conditions, most notably in Europe combined with challenges in our key AUC programs.
Speaker Change: The high end of our guide.
Speaker Change: Better than expected recovery in our European and Asian markets for machine clothing and <unk>.
Speaker Change: Do you see upside to the midpoint of our guide represents higher lead volumes and accelerated growth in our advanced air mobility platforms.
Speaker Change: In 2025, we expect machine clothing is top line to decline by approximately 3% largely due to foreign exchange headwinds and our decision to divest noncore assets.
Speaker Change: Adjusting for those two items sales on a comparable basis is forecast to grow by approximately 2% as compared to a decline in the prior year.
Speaker Change: Our continued focus on delivering heimbach synergies and operational efficiencies as forecasted resulting in approximately 150 basis point improvement in adjusted EBITDA margin for the full year.
Speaker Change: Aac's topline will show modest growth led by <unk>, 63, K and advance our mobility largely offset by leap.
Speaker Change: In 2025, we expect adjusted EBITDA margins of slightly more than 13% at the midpoint of our range.
Speaker Change: Again as a reminder, our adjusted EBITDA margins for both of our segments. Now include Gis costs and are not strictly comparable to the prior years.
Speaker Change: The impact is approximately 3% for AUC margins and approximately 2% for machine clothing margins.
Speaker Change: In total our consolidated adjusted EBITDA is expected to grow by approximately 8%, despite FX headwinds and our investment in new business ventures, reflecting improved underlying performance in machine clothing combined with recovery at AUC.
Speaker Change: We are however, facing certain EPS headwinds below the line.
Speaker Change: Our interest expense is forecasted to increase as our prior interest rate swaps, which were placed back in 2021 expired in the fourth quarter of last year we.
Speaker Change: We have partially offset this by significantly reducing our debt balance.
Speaker Change: Utilizing euro debt to take advantage of the natural hedge opportunities and placing new hedges.
Speaker Change: This was all helped to offset the overall impact of the interest cost increase.
Speaker Change: Interest cost is projected to increase by approximately $5 million in 2025.
Speaker Change: The second headwind we face.
Speaker Change: As with respect to our tax rate is expected to increase to 31%. In 2025. This is due to a shift in taxable income to higher rate jurisdictions.
Speaker Change: Please note that our 2024 effective rate of 24, 8% benefited from a number of discrete items that are not forecasted to repeat in 2025.
Speaker Change: All of this translates to an EPS range for 2025 between $3 and $3 40.
With the midpoint of our guide at $3 20.
Speaker Change: In terms of net earnings cadence, we expect 60% of our net earnings to be recorded in the second half of 2025 and project Q2 results to be stronger than Q1.
Speaker Change: This is due to the expected rapid AUC combined with the acceleration of heimbach synergies.
Speaker Change: Okay.
Speaker Change: Now I'd like to open the call for questions.
Speaker Change: Operator.
Speaker Change: We will now begin the question and answer session.
Speaker Change: Have dialed in and we would like to ask a question. Please press star one on your telephone keypad duration Ham and join the queue.
Speaker Change: I would like to withdraw your question simply press Star one again.
Speaker Change: If you all called upon to ask a question in a listening via speaker falling our device. Please pick up your handset to ensure that your phone is not on mute from asking a question again press star one to join the queue.
Steve Tusa: And our first question comes from the line of Steve Tusa with Jpmorgan. Your line is open.
Speaker Change: Hello. This is kidney second Parker on for Steve. Thanks for taking my question.
Speaker Change: My first question is on AC you provide an update on CH.
Speaker Change: 53, Tom Gulfstream, where you've been seeing some challenges.
Speaker Change: Embedded in your outlook.
Speaker Change: Outlook on for holidays.
Speaker Change: Through the year and then on the margins.
Speaker Change: Pat and Mike 13, five range for 2025 versus <unk> exit rate of 6%, but how do you kind of expect the margins to ramp through the year, you probably can't get back to the 20% because of the cost reallocation, but can you get back to like the 17% range of testing for that 3% impact that you mentioned.
Speaker Change: Maybe in the back half.
Speaker Change: Okay.
Speaker Change: Also.
Speaker Change: The plan for 2025 is with with our current projection performance at AUC.
We believe that overtime, we can with the adjustment from GE.
Speaker Change: We can be in the mid.
Speaker Change: High teens.
Speaker Change: Performance.
Speaker Change: And it'll take us going through 2025.
Speaker Change: Sure.
Speaker Change: Our plan now with our current projection is as.
Speaker Change: David <unk>.
Speaker Change: <unk> I, just if I may.
Speaker Change: The way to think about it is these EAC adjustments that we've taken through the fourth quarter reflect our best estimate.
Speaker Change: The go forward margins, which are reflected in our outlook at 13 five to <unk> point, we have a number of actions.
Speaker Change: Actions in place too.
Speaker Change: To do better than that over time, but I think just important.
Speaker Change: Remember that the guide.
Speaker Change: Reflects.
Speaker Change: And EAC that is our current best estimate as to how the program is going to perform going forward.
Okay. Thanks.
Speaker Change: Thanks.
Speaker Change: I'll have a follow up on the free cash flow.
Speaker Change: Ah well over 100% this year.
Speaker Change: Great, but how should we think about that for 2025 and that may be on a go forward basis and some of these ramp issues are resolved.
Speaker Change: Yeah, no. It's a good question.
Speaker Change: We expect cash flow to range between let's call it $90 about $120 million this year.
Speaker Change: Our internal targets are to be.
Speaker Change: Return on net cash flow above 90% of net income in terms of our conversion that that's really what we target and the team has done a phenomenal job at really attacking the working capital balances. So what you saw this year.
Speaker Change: Probably a slight level of over performance in terms of taking down the working capital, but going forward and as <unk> mentioned with our new incentive comp structure right people are aligned to focus on cash and balance sheet efficiency.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thank you <unk>.
Speaker Change: Our next question comes from the line of Peter Arment with Baird. Your line is open.
Peter Arment: Hi, Yes, good morning, Rob.
Speaker Change: Could you pay.
Speaker Change: Hey, Rob.
Speaker Change: Could you maybe talk a little bit about you mentioned, a more conservative view on boeing's production rates.
Speaker Change: I'm just trying to square that with obviously, we're seeing higher potential.
Speaker Change: Is it more of an inventory issue or just cautiousness, just given the history that you've seen with Boeing in the last couple of years.
Speaker Change: Okay.
Peter Arment: It's a good question Peter and Ni.
Peter Arment: There is a function of inventory that we.
Peter Arment: Working through but we are being cautious.
Peter Arment: As I as I talked to others in the industry I think we're not alone about being cautious about the recovery. It is like I said it is that has some positive signs.
Peter Arment: On what the deliveries but.
Peter Arment: I am cautious to see the actual move rate at Boeing before we.
Peter Arment: Before we make adjustments.
Peter Arment: And also on leap specifically.
Peter Arment: We're working with Stephane.
Peter Arment: We are aligned on our.
Peter Arment: Build plan there.
Peter Arment: And we are continuously this is a month by month.
Peter Arment: I am beginning.
Peter Arment: Beginning to be hopeful that there could be a ramp up towards the end of the year because.
Peter Arment: There is.
Peter Arment: There is light at the end of the tunnel and next year is going to be a strong year.
Speaker Change: I firmly believe so the wrap up there is what we are preparing for right now and Peter just one other thing there.
Speaker Change: On our manufacturing footprint and our experience with the program, we have the ability to ramp very quickly.
Speaker Change: So we have the flexibility to adjust to market conditions as they evolve.
Speaker Change: Okay, so potentially cadence potentially higher in the back half of the year.
If need be.
Gunnar Cleveland: So Gunnar just also on the CH 53, K obviously.
Speaker Change: Replace the team last year, you sound confident about.
Speaker Change: Jim just how do you how do you.
Speaker Change: Kind of talk about just kind of some of the challenges that you worked through this past quarter.
Speaker Change: How do we think about that improvement for that program as we go into 'twenty five.
Speaker Change: Yes.
Speaker Change: I would say in.
Speaker Change: Fourth quarter, a lot of the actions there were.
Speaker Change: Chris Stone at the helm.
Speaker Change: Got in their work with <unk>.
Speaker Change: Frontline leadership development with our training of our employees with the processes.
Speaker Change: The two areas of <unk>.
Speaker Change: Our focus outside the factory where supply.
Speaker Change: Supply chain the supply chain is quite extensive on this program.
Speaker Change: With our internal supply chain is much easier to to balanced and external supply chain and then the planning.
Speaker Change: So our supply chain planning.
Speaker Change: Training and frontline leadership.
Speaker Change: I have been the key areas of.
Speaker Change: Probably improvements and we've also made in the first quarter. This year, we have made.
Speaker Change: Our added talent in those areas. So we have operational leadership that has a strong background in.
Speaker Change: In Assembly.
Speaker Change: Complex.
Speaker Change: Aircraft, we have.
Speaker Change: Planning.
Speaker Change: Talent that has strong background in aircraft.
Speaker Change: Assembly and we have.
Speaker Change: Our new supply chain leader for ADC that also had a strong background in complex supply chain. So so.
Speaker Change: With a focus on the improvements as well as adding the talent in there. That's what gives me the confidence about the path forward.
Speaker Change: Got it I appreciate the color and then just lastly, Rob just around working capital how do we think about that cadence wise for this year.
Speaker Change: Yes, we're going to continue to focus on working capital I think what youre going to see is we're going to continue to make some headway on our working capital balance this year.
Speaker Change: We expect our net earnings clearly to be higher.
Speaker Change: Minus all these adjustments so.
Speaker Change: Once again the.
Speaker Change: <unk> has just done a phenomenal job and this is also.
Speaker Change: Whether it's supply chain working with our vendors and our customers right everyone's kind of chipping in.
Speaker Change: Excuse me.
Speaker Change: To continue to work at it I think.
Speaker Change: In particular, as we integrate heimbach, we're finding opportunities.
Speaker Change: Machine clothing, as well too to take down our working capital balances.
Speaker Change: I appreciate the color I'll jump back in queue. Thanks, guys.
Peter Arment: Thank you Peter.
Speaker Change: And our next question comes from the line of Mike <unk> with <unk> Securities. Your line is open.
Peter Arment: Hey.
Speaker Change: Hey, guys. Thanks for taking the questions.
Peter Arment: I guess just back to Lee.
Peter Arment: Thinking about.
Peter Arment: We're planned production is of leap volumes this year I guess.
Peter Arment: Up 15% to 20% I think I don't know if the math is exactly accurate. Maybe you guys are down 10 to 12, so presumably all destocking and.
Peter Arment: Is that how we should think about the inventory in the channel.
Peter Arment: There is some destocking across the whole channel and I would say that for.
Michael: First half Michael.
Peter Arment: And.
Peter Arment: And then.
Peter Arment: We are ready for it.
Peter Arment: For what happens in the second half depending on how the recovery and the ability of Airbus frankly to grow remember Airbus is a major part of the leap program.
Peter Arment: So we're monitoring that as well.
Peter Arment: Mike.
Speaker Change: I'm, sorry, you know alright, and last year <unk> started the year in 'twenty, four with 20% to 25% growth expectations for leap deliveries.
Speaker Change: Ratchet it down to where we ended I think down probably 10 or 15%.
Speaker Change: So and <unk> mentioned that were being a little bit conservative.
Speaker Change: That is really.
Speaker Change: What we're trying to do.
Speaker Change: Not get too far ahead, and partnering with <unk> right. They see the same thing.
Speaker Change: And we have the ability to flex.
Speaker Change: Okay.
Speaker Change: Got it.
Speaker Change: That makes sense and then just on on the new comp structure.
Rob: Rob maybe I guess.
Rob: Two questions.
Speaker Change: You said total shareholder return was one of the Bogeys there, but if I think about kind of the EAC you've taken it.
Rob: Don't know.
Rob: If you can share if your AUC margins have been sort of structurally pressured here.
Rob: In wire EBITDA margins, I guess I interpreted as absolute EBITDA dollars being part of the bogey, but.
Rob: Or is it more challenging to think about EBITDA margins on a go forward basis, given some of the execution and even maybe.
Rob: Other new start programs that we might not be aware of.
Rob: Yes so.
Speaker Change: If I think about your question.
Rob: The.
Rob: The long term comp right as Qunar mentioned has an adjusted EBITDA component to it.
Rob: And that that level is set in conjunction with work with the board on our long term plan.
Rob: Which is going to reflect kind of the go forward margin expectation for the businesses and as you can appreciate though the plan is.
Rob: Definitely success oriented I mean, it's definitely.
Rob: A target that is not easy to achieve alright, the board wants us on our on our front foot.
Rob: And.
Rob: And then the shareholder return I mean that is something Thats, new I mean, I would say we did a lot of work with our outside compensation consultant to design a structure that should drive long term shareholder creation, especially with the addition of ROIC.
Rob: That is something you know in terms of capital efficiency on the balance sheet that we are very focused on us as we deploy capital. So that is that is something that we feel really good about where that long term comp structure is headed and we really.
Rob: Believe that diversifying the metrics.
Rob: <unk> result in long term shareholder value creation.
Rob: So if I may add.
Rob: It is.
Rob: EBITDA is dollar and we have it in both the short term and the long term so sort of returns.
Rob: In the short term and long term remains important to us we added the cash in the short term because we want them to focus their working capital and making sure that we converted our earnings to cash flow, but we could use it for all the other things that.
Rob: We're trying to do but then the long term the relative total shareholder return is an important metric for us as.
Rob: As well as the return on invested capital. So I think it is a much healthier set up for the long term incentive.
Rob: But we are both interested in how we.
Rob: Spend our capital as well as the.
Rob: The earnings that we make.
Rob: Got it fair alright, thanks, guys I'll jump back in the queue.
Mike: Thanks, Mike.
Speaker Change: Again, if you would like to ask a question Press Star then the number one on your telephone keypad.
Speaker Change: And we have a question coming from the line of Troy, then Leoni with Bank of America. Your line is open.
Troy Leoni: Hey, good morning.
Speaker Change: Sure.
Speaker Change: Good morning, John.
Speaker Change: Could you guys.
Speaker Change: Talk through how you're thinking about tariff risk.
Speaker Change: And increased pressure.
Speaker Change: Just with trade for China and is that contemplated in your guide and if it is to what degree.
Speaker Change: Yes, I mean it.
Speaker Change: I would say that uncertainty.
Speaker Change: As is high and we're not making any reactions to.
Speaker Change: The uncertainty right now we're.
Speaker Change: We're doing a lot of analysis on potential impact and our reaction.
Speaker Change: Once a decision is made.
Speaker Change: <unk> with China is.
Speaker Change: De Minimis.
Speaker Change: So.
Speaker Change: We've done all of those staffed the hard staff work to be ready for this.
Speaker Change: It will end up.
Speaker Change: I cannot predict Jordan.
No. That's fair just wanted to see what how you guys are thinking about it.
Speaker Change: And then two on the new defense programs that you guys have coming out that youre ramping on.
Speaker Change: Concerned at all with the new administration's focus on driving costs down Youll.
Speaker Change: You'll see that pressure.
Speaker Change: From the.
Speaker Change: The primes on those contracts.
Speaker Change: Yes.
Speaker Change: Hi.
Speaker Change: Yes, I think there might there might be some pressure on certain programs, which programs will be targeted as is uncertain.
Speaker Change: Our position on those targets.
Speaker Change: On our programs.
Speaker Change: Because we do have.
Speaker Change: An increased focus on long term contracts I feel fairly.
Speaker Change: Certain about our stability in the long term there the volumes could change.
Speaker Change: And I would say they could change in both directions, depending on which program you're wrong. So we're watching that diligent diligently.
Speaker Change: Again, there's a lot of uncertainty.
Speaker Change: Nobody likes uncertainty.
Speaker Change: But we are working through scenarios, where we where we think that there might be exposure right. So. This is this is this is taking a lot of our time Jordan.
Speaker Change: Got it. Thank you I appreciate the time.
Speaker Change: Okay. Thank you.
Speaker Change: That concludes the question and answer session I would like to turn the call back over to Qunar Cleveland for closing remarks.
Speaker Change: Thank you.
And thank you everyone for joining us on the call today. We appreciate your continued interest in Albany International.
Speaker Change: You kind of have a good day.
Speaker Change: Ladies and gentlemen. This concludes today's conference call you may now disconnect.
Speaker Change: Okay.
Speaker Change: Sure.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: [music].
Speaker Change: Ladies and gentlemen, thank you for standing by my name is definitely and I will be your conference operator today at this time I would like to welcome everyone to fourth quarter 2024 hour battery international earning call.
Speaker Change: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on the telephone keypad.
Speaker Change: If you would like to withdraw your question again press the star one I.
Chiesi: I would not want to turn the conference over to Chiesi, Egypt, Many VP IR and Treasurer you may begin.
Thank you Destiny and good morning, everyone welcome to Albany Internationals fourth quarter 2024 earnings Conference call.
Chiesi: As a reminder for those listening on the call. Please refer to our press release issued last night detailing our quarterly financial results.
Chiesi: Things are indexed other lease is a notice regarding our forward looking statements.
Chiesi: And the use of certain non-GAAP financial measures and their reconciliation to GAAP for.
Chiesi: For the purposes of this conference call those same statements apply to our remarks this morning.