Albany International Corporation

Ladies and gentlemen, thank you for standing by. And welcome to the second 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, July 31, 2019, will be webcast and recorded. I would like to now turn the conference over to Chief Financial Officer and Treasurer Stephen Nolan for introductory comments. Please go ahead.

Thank you very much, 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 the use of certain non-GAAP financial measures and associated reconciliation to GAAP. For the purpose 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 the 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. Well, good morning and welcome, everyone, and thank you for joining our second quarter earnings call. Once again, I am pleased to report that Albany International delivered strong results in Q2 2019. Once again, we delivered strong growth. Total company net sales increased 7%. or 9% excluding the impact of currency translation effects. We also continue to deliver strong profitability. Compared to Q2 2018, operating income grew by almost 29% and adjusted EBITDA by almost 18%. This quarter did benefit from a favorable net change in the estimated profitability of certain long-term contracts in our AEC segment. This net change reflects improvements in labor productivity, pricing, and operational efficiencies, in some cases well ahead of expectations. Even excluding the impact of this favorable net change, we are currently on a solid path to deliver on our profitability expectations for AEC. Once again, as I have stated before, I want to credit those profitability improvements to the dedication of our people to our company and to generating shareholder value by working relentlessly to drive productivity gains. Turning now to the current state of our business in engineered composites, we continued the streak of strong quarterly growth with 27% growth in net sales over the same quarter last year, or 28% when excluding currency translation effects, another remarkable achievement. We continue to be on track to meet the full rate production demands of our key programs, including LIP, Boeing 787, F-35, and CH-53K. In terms of current period profitability, AEC delivered 24% adjusted EBITDA margin for the quarter, well ahead of our expectations. We delivered strong labor productivity and operational efficiency gains achieved through our relentless focus on operational excellence, which helped drive both the favorable net change in the estimated profitability of long-term contracts and also additional profitability improvements. We continue to expect to deliver between 18% and 20% adjusted EBITDA margins for the full year of 2020. We continue to monitor very closely the ongoing situation with the Boeing 737 MAX program to which we are a key supplier through our joint venture with Safran on the LEAP engine. We have previously indicated that the LIP program represents about half of AEC's net sales. This continues to be the case. It represented a little under 50% of AEC's Q2 net sales. As I'm sure you're aware, we are the exclusive supplier for the life of the program of components, fan cases, fan blades and spacers for both the LEAP 1A variant used on the Airbus A320 NEO family and the LEAP 1B variant used on the 737 packs. Based on the latest communications with our customer Saffron, we have implemented certain reductions to our production plans for LEAP components for the second half of the year, which will impact AEC's second half results. However, as we have indicated before, the somewhat unique structure of that program, which is being operated under a cost plus fee arrangement, mitigates the financial impact to AEC of any production changes. As a result, as will be clear from Stephen's remarks, this revised outlook should not, at this time, impact our ability to deliver our previously issued guidance for the year. However, it does limit our ability to deliver upside to this guidance range, particularly with respect to net sales. We strongly value our relationship with Safran and are proud of our participation on the Airbus A320 NEO and Boeing 737 MAX programs. Overall, we remain very pleased with AEC's progress and its ability to meet the program needs of our customers and to deliver strong returns on capital to our shareholders. Turning to machine clothing, for full year 2019, we previously indicated that we expected revenue to be relatively flat for the full year when compared to full year 2018. For Q2 2019, on a currency-neutral basis, we delivered net sales about 2% below a very strong Q2 2018. Year-to-date, on the same basis, net sales are up slightly relative to the prior year. We continue to expect revenue to be relatively flat for the full year when compared to full year 2018, with board and packaging, tissue and towel, and pub-grade PMC sales increases, more or less offsetting declines in publication-grade PMC sales. We are very pleased with our profitability in the quarter. Even with the lower volume and resulting lower fixed cost leverage this year, we delivered gross margins of 51.8% compared to 48.9% last year. We continue to 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.