Albany International Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the first quarter earnings call of Albany International. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will be given at that time. At the request of Albany International, this conference call on Wednesday, May 1, 2019 will be webcast and recorded. I would now like to turn the conference call over to Chief Financial Officer and Treasurer Stephen Nolan for introductory comments. Please go ahead.

Thank you, Alan, and good morning, everyone. As a reminder for those listening on the call, please refer to our detailed press release issued last night regarding our quarterly financial results. With particular reference to the notice contained in the text of the release about our forward-looking statements, and use of certain non-GAAP financial measures and associated reconciliation to GAAP. For the purposes of this conference call, those same statements also apply to our verbal remarks this morning. For a full discussion, including a reconciliation of non-GAAP measures we may use on this call to their most comparable GAAP measures, please refer to both that earnings release as well as our SEC filings, including our 10-K. Now I will turn the call over to Olivier Giraud, our Chief Executive Officer, who will provide some opening remarks. Olivier?

Thank you, Stephen. Good morning. Welcome, everyone, and thank you for joining our first quarter earnings call. I'd like first to welcome Stephen to the company and to his first earnings call with us. Stephen has more than 16 years of experience in operational and strategic finance, most recently serving as CFO for Esterline Corporation. Stephen brings to us an extensive experience within the aerospace and defense sector and an impressive track record of strategic execution. His expertise will be of significant value to the company. Q1 2019 was another very good quarter for Albany International as excellent performance continued across both businesses. Once again, we delivered strong growth. Total company net sales increased 12% or 15% excluding the impact of currency translation effects. As you know, we are working across the business to improve profitability, and that was reflected in dramatic improvements in this quarter's results. Compared to Q1 2018, operating income grew by 136%, net income attributable to the company by 281%, and adjusted EBITDA by 22%. While this quarter did benefit from a handful of adjustments, both to long-term contract profitability and income taxes, our underlying performance was strong and puts us firmly on pace to achieve our long-term expectations. That performance is a testament to the people we have working for us and to their dedication to our company and to generating shareholder value. I have now been at the helm of Albany for just over a year, and I am thrilled with the progress we have made during that time. My focus has been on ensuring that we have a solid foundation for revenue and profitability growth. Albany has a long, proud history and has been an exceptional performer for many years. However, when I arrived, I realized there were several actions we could take to stabilize and enhance that foundation for growth. In particular, I have focused on four improvement levers for the business. First lever, driving improvement in operational metrics. In both, our more mature machine clothing and our rapidly growing aerospace composite segments, labor productivity gains, and overall equipment effectiveness improvements are the major drivers of our profitability. We have enhanced our measurements and tracking of key operational metrics, and we have introduced a relentless focus on operational excellence and productivity improvements through the deployment of a standardized discipline operating system, which is driving profitability and value for our shareholders. While we certainly still have work to do here and have identified additional opportunities for improvement, I am pleased with the progress we have made to date. Second lever, ensuring we have an engaged and energized team to deliver on our strategic and financial objectives. I joined a strong team at Albany with many talented individuals who had contributed to Albany's long track record of success. However, I also recognized a number of opportunities to upgrade the talent in several areas across a number of key roles and functions. Much of the talent upgrade is now behind us and I now have a team in place that I am confident can successfully deliver on our strategy. I will continue to ensure my team is fully energized and engaged. Third lever, increasing our focus on new business capture. While we continue to ramp up to meet the demands of the aerospace programs we have already won, it is important that we continue to aggressively pursue new business across the enterprise. While we already enjoy a number of technology leadership positions across both segments, we need to continue to invest in new product introductions and advanced process technologies. I have been very impressed with some of the new capabilities coming down the pipeline and look forward to discussing them publicly at the appropriate time. We have also established a new sales and marketing organization in AEC with the resources, executive support, and demonstrated aerospace experience needed to capture key business opportunities. Fourth lever, strategic investments for the future. We recognize that we are stewards of our shareholders' capital. We intend to be deserving of that responsibility. We will continue to look for opportunities to invest for long-term growth and profitability, whether that be internally through capital expenditures or externally through acquisitions. We are proud of the investments we are continuing to make in expanding our capacity and capability, most notably to meet the ramp-up demand of our aerospace composites programs. We believe that the returns that our shareholders will enjoy for decades from those investments will more than justify their costs. We are also actively looking at inorganic growth opportunities to expand our manufacturing capabilities, broaden our technology and product offerings, or strengthen our ability to serve our customers. However, our hurdle for such investment is high. We will be prudent acquirers. only executing on an acquisition when we have convinced ourselves that it will create value for shareholders and that we fully understand and properly manage the associated execution and integration risks. Turning now to the current state of our business, I am pleased to report that not only is the global aerospace market still strong, our aerospace composites business is performing above market levels. Compared to Q118, AEC net sales grew by 31% or by 33% when excluding currency translation effects, a remarkable achievement. We continue to be on track to meet the full rate production demands of our key programs, including LEAP, Boeing 787, As I walk the floor of our plants, I am thrilled by how far we have come in building out and demonstrating our ability to meet rate production. Our focus now is not only meeting the rent, but also continuously improving profitability. In terms of current period profitability, AEC delivered 19.1% adjusted EBITDA margin for the quarter. This is somewhat ahead of our expectations, driven by improved net productivity savings and also helped by a favorable net change in the estimated profitability of long-term contracts. We continue to expect to deliver between 18% and 20% adjusted EBITDA margins for the full year of 2020. We are all aware of the challenges Boeing is facing with the 737 MAX program, to which we are a key supplier through our joint venture with Safran on the LEAP engines. We are encouraged by the public announcements of Boeing's progress in addressing the underlying issue, and we are pleased that Safran has indicated that there is no current plan to change their LEAP-1B production schedule. As a result, we are not projecting any change to our forecast for production of LEAP-1B fan cases We have been very pleased with our long-term partnership with Safran, and the LEAP program remains a key strategic focus for Albania. We continue to invest in R&D and new business in AEC. As I have said previously, we continue to focus on our new product development projects, leveraging existing, derivative, and new technology, and on our process improvement projects, which aim to optimize our operational performance across AEC. Turning now to the NC business, where we also did very well this quarter. Globally in the marketplace, we continue to expect board and packaging, tissue and towel and pub rights PMC sales increases to more or less offset declines in publication rights PMC sales. Fortunately, we're very well positioned with strong market share and profitability in the growing product rights. For the full year 2019, we previously indicated that we expected revenue to be relatively flat for the full year when compared to full year 2018. While we still expect that to be the case, growth in Q1 at about 5% was strong compared to a relatively weak Q1 in fiscal year 2018. We're very pleased with our profitability in the quarter. delivering almost 12% improvement in adjusted EBITDA. We do face challenges in this market, primarily due to pricing pressure and rising input costs, whether those be labor or raw materials. We rely principally on continuous improvement manufacturing initiatives, superior customer service, and technology leadership to continue to drive profitability in this business. With that, I would like to turn the mic over to Stephen, who will provide more details on the quarter and our guidance for the full year. Stephen?

Thank you, Olivier. I would like to thank everyone for joining us on the call this morning. It's great to be here at Albany. As I mentioned in the earnings release last night, I've been incredibly impressed by the people I've met in my first month here. and I'm thrilled to be able to present such good results this morning. I will talk first about the results for the quarter, and then give a brief update to the guidance for fiscal 19 that was provided as part of the Q4 fiscal 18 earnings call. For the first quarter, total company net sales were 251.4 million, an increase of 12.4%, over the $223.6 million delivered in the same quarter last year. Adjusting for currency translation effects, the growth in net sales was 15.2%. On the same organic basis, excluding currency translation effects, MC grew at 4.8%, primarily driven by growth in tissue and packaging grades globally and in the North American market across all major grades, while AEC grew at 33.1%, primarily driven by growth in the LEAP and CH53K programs. First quarter gross profit for the company was 91.8 million, an increase of 18% over the comparable period last year. The overall gross margin rate increased by 170 basis points, from 34.8% to 36.5% of net sales. Within the MC segment, gross margin rate improved from 46.8% to 51.6% of net sales due to higher net sales driving increased fixed cost leverage and improved labor productivity. Within AEC segment, The gross margin rate improved from 14.1 to 16.1% of net sales, driven by higher net sales driving increased fixed cost leverage, improved labor productivity, and a favorable net change in the estimated profitability of long-term contracts. First quarter, selling, technical, general, and research expenses declined significantly. from 52.2 million or 23.3% of net sales in the prior year quarter to 51.2 million or 20.4% of net sales in the current quarter, driven primarily by lower losses from the revaluation of non-functional currency assets and liabilities in the current quarter, partially offset by an increase in corporate expenses due primarily to CFO termination costs. Total operating income for the company was $40.1 million, an increase of 136% from $17.0 million in the prior year. MC operating income grew by 64% to $44.2 million, driven by higher gross profit and lower FTD and R, while AEC operating income grew by 319% to $9.5 million, also driven by higher gross profit and lower SDG&R. These improvements were partially offset by an increase in corporate expense as described earlier. The income tax rate for the quarter was 20.3% compared to 29.9% in the same period last year. The reduction was driven largely by discrete items, which drove the rate lower than our expected 29.4% rate on an ongoing basis. Net income attributable to the company for the quarter was 29.2 million, an increase of 281% from 7.7 million last year. The increase was driven by improved operating income and the lower tax rate. Earnings per share was 90 cents compared to 24 cents last year. After adjusting for restructuring expenses, and the impact of foreign currency revaluation gains and losses. Adjusted earnings per share was 87 cents this quarter compared to 47 cents in the comparable period last year. Adjusted EBITDA grew 22.3% from last year to 57.6 million for the current year quarter. MC adjusted EBITDA grew from 45.2 million last or 31.9% of net sales in the prior year quarter to 50.5 million or 35% of net sales this year. AEC adjusted EBITDA grew from 13.5 million or 16.4% of net sales last year to 20.5 million or 19.1% of net sales this quarter. Turning to our debt position, total debt which consists of amounts reported in our balance sheet as long-term debt or current maturities of long-term debt, decreased by almost $34 million to a balance of $491 million at the end of Q1, and cash reduced by about $10 million during the quarter, resulting in a reduction in net debt of about $24 million. However, these decreases in total debt and net debt reflect a reduction of almost $26 million of lease obligations out of long-term debt due to the implementation of ASC 842. As you are no doubt aware, for a variety of reasons, including the payment during the quarter of incentive compensation, our first quarter has traditionally been a quarter with lower than average cash generation. This year, our working capital initiatives resulted in a significant improvement in cash flow from operations. While in the comparable period last year, we had a use of cash of almost 19 million, this year we generated almost 25 million in net cash from operating activities. Payments for all capital expenditures in Q1 fiscal 19 were about 21 million, reflecting continued investments in equipment to support multiple ramp-ups in AEC. Looking forward to the full year, we previously provided guidance that MC revenue would be relatively flat to fiscal 18 and that it would generate between 195 and 205 million of adjusted EBITDA. And we indicated that AEC would generate 20 to 25% of revenue growth with improved adjusted EBITDA margins from fiscal 18. Assuming no significant changes in global economic conditions or currency rates, or significant unfavorable change in Safran's leap production schedule, we still believe that our segment guidance holds. In addition, this quarter we are providing guidance for additional corporate metrics consistent with that prior segment guidance. For the full year fiscal 19, we expect that at the company level, we will generate revenue of between 1.05 and 1.08 billion, Adjusted EBITDA after incorporating both prior segment guidance and corporate expenses of between 225 and 240 million. An effective income tax rate, including tax adjustments this quarter, of 27 to 29%. Capital expenditures of between 20 and 25 million per quarter. Depreciation and amortization of between 70 and 75 million. earnings per share of between $3.08 and $3.38, and adjusted earnings per share of between $3.05 and $3.35. With that, I will pass the call back to Olivier for further comments.

Thank you, Stephen. As indicated by the guidance Stephen just provided, we continue to feel very good about the year. and are very confident in our ability to deliver the segment results I discussed on the last call. MC is performing well in a challenging environment with market and input cost pressures, but it's more than holding its own. AEC is ramping up production and moving down the learning curve, putting them in a very strong position to hit the 2020 objectives we have established for them. Overall, I feel very good about the business and our ability to hit our expectations. With that, let's go to the line for any questions. Operators?

The phone lines are now open for questions. If you would like to ask a question, please press star then 1 on your touchtone phone. You will hear a tone indicating you've been placed in queue, and you may remove yourself from queue by pressing the pound key. And if you're using a speakerphone, we ask that you please pick up your handset before pressing any buttons. Again, for questions, press star then 1 at this time. Our first question will come from the line of Peter Arment from Baird. Go ahead, please.

Yes, good morning, Olivier and Stephen. Thanks for the good results for starting the year. I guess to get a little more specific on the 737 ramp. So Safran has been indicated that there's no change in plan. So maybe if you could just give us a little color that you are planning to be at the higher rates, either in the second half of this year, which previously was 57 a month, or where that stands, at least from your perspective.

No, sure. And thank you very much for being here with us. Listen, you know, as I was explaining, I mean, you understand, I cannot comment really on Safran's future potential plans. And Safran is our customer, our main partner. And as you just pointed out, we, you know, follow their guidance and we follow their requirements. So I can restate once again that Safran has communicated to us many times in the past few weeks They have reassured us that they have no current plan to change the LEAP 1B production schedule. They really consistently indicated to us that they will not change any production schedule nor any rank requirements. You certainly also listened to Mr. Petit-Colin last week during the Saffron earnings release. Himself, he reiterated the fact that the... CFM division had maintained the production rate, so the leap won't be at this point, and will undertake only temporary adjustment, only if necessary. So, for us, what does it mean? It means that you just pointed out that we continue to drive our ramp-up across our global manufacturing footprint to meet the ramp-up requirements of the 57 aircraft that being had in mind prior to that drop, right? So we are really pushing, you know, executing on the plan that we had, you know, devised for the year. I'm very, very happy about the progress we've been making in Q1 across fan blades, across fan cases, across spacers versus Q4. And we are going to execute on that one as planned. We have all the indicators that we're explaining, all the indicators in place to follow and track our progress, our ramp-up progress on a daily basis.

Okay? Okay. That's great, Collier. And just as a follow-up, you mentioned on kind of your four strategic initiatives around driving operational metrics, both at MC and AEC. Is there any kind of metrics that you want to call out on, like at least the gains you're seeing on labor productivity or on the equipment side?

Well, we're seeing, you know, it's quite interesting, as I was explaining to you a little bit earlier, right, in the year, I mean, we have developed the system at AEC, which we are, by the way, you know, spreading across the AEC as well, more and more, as we see, to track down our labor productivity on a daily basis, by flow path, by segments, and, of course, by plant, and every day have a call at 1 o'clock for two hours. with all my front managers to drive and dissect and understand the price we're making, you know, versus the day before, versus the week before, right? It's all labor productivity, labor utilization, labor efficiency. And when you reverse to the assets, to our key assets, our looms, our ovens, our autoclaves, our key pacing assets, it's all about effectiveness. So I'm seeing, you know, quarter over quarter, very nice gains. about 2%, 3%, 5%, 6% depending on the flow path and depending on the assets, right? So it's pretty interesting to track and we'll become more and more transparent about it once we have, you know, the entire system fully, you know, organized that way and track it. But, I mean, I'm very encouraged. That's why I was saying I'm extremely encouraged with the price we have been making in the past quarters, okay? And it will continue as we speak, you know, in the next, in the following quarters, right?

Our next question will come from the line of John Franzreb with Sidodian Company. Go ahead, please.

Good morning, Olivier, and welcome aboard, Steven. My first question is regarding your initial EPS guidance. If I kind of understand some of the puts and takes, it may suggest you're looking at a lower overall gross margin profile for the balance of the year than you achieved in the first quarter. If I'm right in that assumption, is that because maybe machine clothing overachieved or if there's something else, some other operating expense that's going up that I'm not cognizant of?

Well, I mean, let me, and Stephen will jump into it as well, but let me, you know, let me go back to the fundamentals. You know, we had a very good quarter in MC, very good first quarter, as I pointed out. You noted the increase in revenue year over year. But this Q1, which was, you remember very well, we did discuss this, Q1 was relatively weak, right? Q118 was relatively weak water, right? So we had a 5% increase, right, in volume year-over-year. That, of course, rose, increased. fixed cost leverage. We had some normal, good, very strong labor productivity improvements. We also did benefit from the restructuring. Remember, we restructured the Celesta in France, the French plant. And we also saw some nice, you know, some nice, some favorable, I would say, year over year, favorable pricing, favorable mix, right? Year over year, right? So in Q119. So, you know, we saw as an example, you know, we saw some nice increases in packaging rates, PMC sales across North America, South America, even Europe, even Europe, or the flat in Asia Pacific. All that was driven by some good quarterly, some good seasonal orders. We saw, from a mixed standpoint, a pretty nice increase in our tissue-grade PMC cells in North America, in South America, in Asia Pacific, all driven by consumption. And if I revert to publication grades in our first quarter, from a mixed standpoint, it was not that bad either because we saw in North America and in Europe a slight increase in our publication-grade PMC cells driven by some very specific if you will, some specific orders that may or may not duplicate, replicate in the next quarters, right? And anyway, that we're all upset on a net basis, more than upset by a decrease in Asia Pacific and South America. So, you know, that's ready to explain to you. So, weak Q1 last year, relatively. Some nice level productivity improvements and a good mix, a good favorable mix and price. So, now, excellent performance, we did deliver 50 million, over 50 million dollars of EBITDA versus 45 million dollars last year, same quarter. And, you know, our guidance is about, like I already said, 195 to 205, much higher for the full year, much higher than the historical range of 180 to 195. I look, there's absolutely no, absolutely no, you know, increase in cost coming at us at all. We are just looking, we're continuing basically to to execute and to drive productivity quarter after quarter. If you look at the, you know, if you look at the U19, like I said last, you know, a couple of months ago, you look at your U19 versus 18 from a macro economic standpoint, it's clear, as you know, the world growth is projected to be slightly less in 19 than it was in 18. I think it's 3.3 versus 3.6%. in 18, it will come back in 20, but you look at China, you look at the environmental pressure in China, you look at the trade tension between US and China, And in China, you look at the political uncertainties in France, the Gilets Jaunes, you look at, you know, you look at what's going to happen in Germany, you look at Brexit, all that makes us think, not only us, but, you know, all of us in the industry, that the overall, right, the production of paper and paperboard in 19 will be less than what it was in 18, for the full year. However, looking at the long term, 2018-2023, we see, just published recently, we continue to think that we can expect a reasonable CAGR rate of about 1, 1%, say 1 to 1.5, even 1.5, right, year over year, each year, until 2023, right? So that's 24 days. So we have a little bit of, you know, GDP, right, a world, you know, growth impact on the demand, right? Now, if you look at the 19 PMC market, right, how does it translate? It's always good to take a good look at the market globally, but not for PMC. I'm switching from paper to PMC market. So the US PMC market, which is our largest market, seems to be more or less stable. Continued growth in packaging and tissue brands. We have seen some packaging machines slowing down, if you want, on purpose, slowing down, but still upset by a continuing decline. However, slowing down somewhat in the publication grade consumption. Pushing to the Canadian PMC market, same story as I shared with you earlier. We continue to see the market shrinking, mainly due to a continued publication grade consumption decline, especially newsprint. Brazilian PMC market. Even though economy is good there, we think it will decline over the year due to the fact that we don't foresee any new significant nation startups. as we saw last year, and with a slowdown of export of bulk bread into China because of the, you know, ban on imports right in China that you have heard of. So, we think the bread market, you know, will be declining. PMC market will be declining for the full year when compared to 2018. And now, if you switch to the European PMC market, same, if you will, same story. It will continue to drop. As a result, as I explained already and as you know very well, a slight growth in the packaging grade consumptions with a lot of machine conversions from printing and writing to packaging and also no new tissue grade machine stuff. And the Chinese market more or less stable, I mean the South Asia market more or less stable, Chinese market shrinking and due to the environmental issues, However, the good thing going forward, we think that they are, as you certainly read, we read and we know that there might be some, there are some plans to install new packaging machines in 21 through 22 in Southeast Asia, in Malaysia and Indonesia. So, you understand the PMC market, right? I just shared with you our view. So, what are we going to do about it? It's our plan for the balance of the year. through technology effort that we have already deployed in the past to basically gain share in the growing grass, packaging, tissues, in order to somewhat offset this weaker demand on the PMC side. So therefore, I continue to reiterate our guidance, 195 to 205, as a result of the combined effect of a little bit of reduced volume, right? Not for the balance of the year versus last year. We have labor inflation picking at us, you know, but through that it will be offset as much as we can by net productivity gains, manufacturing gains. We have some raw material inflation as well that we are fighting, and maybe some product mix year over year, right? So, you know, so that's why I think that the performance of MC in 2019, I reiterate, will be very strong You know, 185 to 105, once again, much higher than the historical range, right? Of 180 to 195, right? Stephen, would you like to add anything? Yeah, good morning, John.

So, as I look at the margin for the full year, if I look at the EBITDA margin, by recognizing we've provided a range for both EBITDA guidance and net sales guidance for the year, at the midpoint of those ranges, just for, you know, to pick a point, it equates to around about 22% adjusted EBITDA margins. For Q1, we delivered 22.9%, so slightly higher than our guidance for the year. Two things to call out, though. One, as we noted in our remarks earlier, We had an adjustment to the probability of some long-term contracts within AEC. You'll see in the queue that will be filed later today, that was about a $600,000 benefit within the year. So take that as a benefit to Q1 compared to the rest of the year. And then secondly, within MC, we had called out that we expected it to be relatively flat net sales for the year compared to last year. Obviously Q1 is up compared to Q1 last year, which implies Q2 through Q4 will be slightly down compared to last year just in total, with a little less fixed cost absorption as a result. So you add those together, you really explain the, you know, kind of 100 basis point difference between our guidance for the full year and our Q1 results. So I don't think there's something unexpected coming at us later in the year that's going that's resulting in lower guidance for the year than Q1. As we look at it, it's fairly consistent. The full year is fairly consistent with what we delivered in Q1, absent those two kind of one-time benefits we got in Q1.

Okay, and just one question, and you can answer this quickly. Historically, Q2 has been stronger than Q1 for PMC. Were there some jobs, unusual jobs last year that will result in that not being a dynamic this year, that Q2 will be flat to down versus Q1 this year? And I'm talking in terms of revenue.

Yeah, John, so two things I would say to that. One, certainly this year we had a stronger Q1 than we've had in a couple of years, and And that was driven by a couple of events. There were a couple of significant customers who had some line startups during the quarter, resulted in a very solid Q1. We don't provide quarter guidance, so I can't give you an exact guidance for Q1. MC revenue in Q2, but certainly this Q1 was stronger than we would typically expect. And look, that's supported by the share of the revenue. If you look just at our guidance of revenues to the year being flat to last year, and how much of that guidance we delivered in Q1. That's more than we would traditionally have expected to provide in what you pointed out as a seasonally weak Q1. So I think the general trends we see will hold this year, but this was a particularly strong Q1.

Okay. Join us. Thank you, Steve. I'll get back to you.

And as a reminder, ladies and gentlemen, if you do have a question, please take this opportunity now to press star then 1 on your touchtone phone. We'll go next to the line of Christian Herbosa with Noble Capital Markets. Go ahead.

Hi. Thanks for taking my call. I just have a couple questions. First, as you mentioned in your comments, operating income margins in the AEC segment have improved significantly. What do you attribute that success to mostly, and how do you think those margins can go?

Yes. Definitely AEC. When we look back at the The performance, right, over the past couple of years, you know, we keep on improving at a very, very fast pace. You saw I think 17 was about $31 million of EBITDA once you exclude, right, some unfavorable net change in estimated probability of some contracts or 11% of EBITDA margin. We grew it to $63 million of EBITDA last year or 17.1%. We just delivered 19.1% in the first quarter. Once again, Stephen reminded us we had the net benefit, and the benefit favorable, you know, benefit of a change in the estimated profitability of some contracts, right? But still the performance is very strong. I'm very encouraged with it, and it's basically due to pure, as I was explaining, deployments, of a standardized daily operational financial system, driving productivity gains, driving labor efficiency, driving down our, you know, our cost, our non-quality cost, and ensuring that we minimize our key assets, right, the downtime, unplanned downtime, and really, you know, focusing at the asset level, at the employee level, and making sure that we continue to very strongly deploying what I call a novel, very strong, continuous improvement program, Six Sigma-driven, right? So that's basically you see in here really the deployment, I would say, of manufacturing operations, aerospace 101, right, in order to boost that profitability. And we have, as I was explaining, we have a huge potential, right, to continue, right, boosting that performance, right? So I reiterate my guidance in here. We said that we would drive in 20 revenues of $500 million to $550 million, right? And remember, we just increased it, right, a quarter ago, and that we would drive towards an 18 to 20%, right? That may position us very well in the 90 to 110 million dollars of EBITDA, and I feel very encouraged based on last year and again this first quarter, very encouraged about our ability to deliver that range in 20. And then later on in the past 20, of course, keep on growing that revenue, that volume, and improving our productivity, right? Okay?

You also mentioned in the comments that you are working capital management initiatives on improved cash generation. Can you expand on what those initiatives are and how they work?

Sure, sure. I mean, we're part of the management, right, of operations, especially on the aerospace side. has been since I joined to really focus, if you will, on working capital efficiency, right? If you check our year ago, our Q118 working capital efficiency versus our Q119 working capital efficiency that's expressed in days of working capital, because of the metrics I've been deploying with my team across our plants, you will see that March 19 QTD versus March 18 QTD, we roughly improved our days by 20%, roughly, you know, at the Albania level. So very nice project, you know, improvement. We can do much more, and we'll continue to do much more, daily focus on AR, on receivables, daily focus at each plant, across the system, MC and EC on APs, and, of course, more and more focus, and we'll continue to gradually improve the efficiency of our inventories, you know, a big focus on manufacturing inventory, on raw materials, on whip and finish goods, right? So you saw that nice progress. We did generate, as Stephen mentioned, I was very pleased with it, $25 million of cash from ops, right, versus the use of $18 million last year. That's the first, you know, that was very good for us. We're very, very proud, and I thank all my team to be able to deliver it. And you'll keep on seeing quarter after quarter, even more and more focus on improving the efficiency of our working capital. Okay?

Okay, great. Thank you. That's all from me. Thanks for your time.

You're very welcome, and thank you for being on the call.

We now will go to the line of John Franzrad for a follow-up call with Sidonian Company.

Yes, Olivier, you've mentioned you've got the team in place that you want now. In previous calls, you've mentioned you want to be more aggressive in organic growth. Can you kind of give us an update of what you're looking at as far as acquisitions? What kind of targets do you think are most appealing? Anything along those lines would be helpful.

Sure. Listen, you understand what we don't, of course, right? We don't comment publicly, right, about any strategic, potential strategic transaction. But, listen, it's clear, as I've already said in the past, that we continue to explore, how could I say it, potential inorganic targets. Whether we would act on any of them depends, of course, on a variety of factors. How each of those targets would basically strengthen our position in the supply chain. How each of those targets would enhance our long-term market positioning. uh how each of these targets would basically i mean the level of returns uh that each of those targets could bring and of course the the the value that they would they would create for shareholders right so we're exploring and um you know uh you know but as i said a little bit earlier we would be very prudent acquirers i have a lot of experience myself into making acquisitions, Steven as well, and we know what it takes and we're capable of, if you will, really assessing, we'll move only and only after having really assessed, right, that we can integrate properly and we can generate, right, the next synergies and the returns. So, you know, right? So, that's all I can share with you.

Is there a specific size of an acquisition you're looking at? Is it something on a smaller scale, a larger scale, how it's tucked in? What are you thinking about how willing you are to lever up to purchase something?

So, generally, we have said before we would ideally like to look for businesses with revenue above $100 million. Just below that, it ends up being almost as much work without the real needle-moving impact on the company. That said, we are going to be prudent at the upper end I would not see us levering up to what you would consider high levels to execute on very significant transactions. I think they're going to be in a relatively narrow band, probably north of 100 million. Not that we would not look at something below that if it had particularly unique technology or capabilities. But somewhere in the north of 100 million, but the upper end is not certainly in the hundreds and hundreds of millions of range, we're not going to lever up to the level required to execute a transaction of that size.

I think it's a very good point, Stephen. And one point I'd like to reiterate on that standpoint, we are really, really focused on IP, on high technology type acquisition, Bolton acquisition, high IP acquisition. high technology proprietary product and process type companies.

Okay. Great. Thanks for taking my follow-up, guys. Thank you. You're very welcome.

We'll next go to the line of Christopher Hillary with Robe Capital. Go ahead, please.

Hi. Good morning. Morning. Morning. I just wanted to ask, you had extensive comments on... productivity improvements that you see in your pipeline, and you also talked a bit about how much you've upgraded the talent of your team. Do you anticipate that expressing itself in your margins going forward? Because it just seems like you have a rich opportunity set for material improvements based upon the comments I was hearing today.

Yeah, look, we have delivered significant improvements in margins. One thing you do need to recognize from productivity perspective, right now a significant program for us is LEAP with our Albany Safran Composite Joint Venture, of which we are the 90% owner. The way that contract is currently structured, it is a cost plus type contract. As a result, the productivity improvements we're driving there are in a perverse way actually reducing our revenue, but they're getting us down the curve we need to get down to to make ourselves competitive and secure the long-term future of that. There are also step-ups in profitability if we hit certain price targets on that program. Some of what you're seeing in terms of productivity improvements are not hitting the bottom line right now. However, That said, as Olivier mentioned in his comments a few moments ago, and I think it's quite clear, if you look at the profitability of the aerospace composites business most notably, but even of the machine clothing business, there have been significant improvements in profitability over just the last 12 months, and I think we would expect that to continue to improve on the AE side, getting us solidly into that 18-20% range on the just-as-eat-the-down margins in fiscal 20.

Yeah, that's a very good point. And in addition to that, to go back to the talent, you know, that you just mentioned, talent additions, you know, I'm reverting back to the aerospace business. One thing that, and I can't give you, you know, more details about it publicly because we're not allowed to yet, but, you know, I mentioned that we reorganize ourselves and set, you know, the foundation for a good, strong, dedicated, experienced aerospace commercial team. It paid off already. You'll see in the next few weeks when we're allowed to announce it. But we recently successfully negotiated the expansion of one of our key long-term agreements, serving, supporting one of the highest high-key, high-growth platforms for five more years, an extension of five more years. And in addition to that, we're able to expand our work share on that particular high-growth platform. So more details to come, but we're very thrilled. It's really an equation. of, you know, the thing that we're doing, improve talent, organize ourselves on the aerospace side to grow organically, and therefore at good margin and to bring our profitability up. So I'm very encouraged, you know, again, by our commercial success this quarter. Okay. Thank you.

We have no further questions in queue at this time. Please proceed.

All right. Again, well, thank you all for joining us on the call. We do appreciate your time today and your continued interest in Albany International. I'd like to conclude today's call by recognizing my entire Albany team for another very strong quarter of performance. Thank you all.

Ladies and gentlemen. A replay of this conference will be available at the Albany International website beginning at approximately noon Eastern time today. That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.