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?