Albany International Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Albany International Third Quarter 2019 Earnings Call. 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. If you should require assistance during the call, please press star, then zero. I would now like to turn the conference over to our host, Mr. John Hobbs, Investor Relations. Please go ahead.

Thank you, Taliesha. 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 purposes of this conference call, those same statements 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, John.

Good morning. Welcome, everyone, and thank you for joining our third quarter earnings call. Albany International delivered another very good quarter in Q3 2019, outpacing our expectations. I want to congratulate all of Albany's employees for contributing to these very strong results. We delivered solid year-over-year growth. Total company net sales increased 8% or 9%, excluding the impact of currency translation effects. We also continued to deliver strong profitability. Compared to Q3 2018, operating income grew by over 36% and adjusted EBITDA by almost 14%. Overall, we are clearly running ahead of the expectations for the full year that we shared with you on the Q2 earnings score. This outperformance is fundamentally driven by three factors. First, as I am sure you are 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 Boeing 737 MAX. We mentioned on the last call that we were reducing our second half production rate for the LEAP 1B components as we await the return to service of the Boeing 737 MAX and we expressed concern about the risk of potential additional cuts to production in the second half of the year. However, since then, while we have reduced our production rate, we have reduced it by less than we had anticipated. During the recent quarter, we worked with our customer to maintain a production rate of LEAP components higher than the delivery rates of those components. This action, which has been taken to ensure that we can retain our talented and experienced workforce, is expected to continue for the balance of the year. Due to the terms of our contract with our customer, the relevant accounting standards require us to recognize both revenue and gross profit on that production. As a result, this action has contributed to some overperformance for the second half of the year compared to what we were expecting last quarter. Once again this quarter, the AEC segment benefited from a favorable net change in the estimated profitability of certain long-term contracts, reflecting improvements in labor productivity and operational efficiency. By the nature, while the results from improved operational performance, the timing and the magnitude of this type of adjustments are difficult to forecast. Third, we also talked on the last call about softness in the paper products and markets in the first half of the year, which we expected to result in weakness for machine clothing business in the second half of the year. While we have seen corresponding declines in our revenues in several markets, most notably in Europe and Asia Pacific, we have been fortunate that the softness has not yet resulted in a reduction in our machine clothing volumes in North America, which is our largest market. In fact, we delivered mid-single-digit revenue growth in North America this quarter, and we have also managed to maintain and even grow our overall segment growth margin. I should note that this does not mean we're immune to the pulp and paper market softness in North America. Instead, it's likely timing, and we do still expect to see some softness in machine clothing revenues in that market and our overall segment profitability in future periods. All that said, I could not be more proud of the company's results this quarter and of the efforts made by our talented, dedicated, and experienced workforce. Turning now to the current state of each of our segments. In Ingenious Composites, we continue the streak of strong quarterly growth. Net sales grew by 27% compared to the same quarter last year, or 28% when excluding currency translation effects, another remarkable achievement. We remain on track to meet the full-rate production demands of our key programs, including LIP, Boeing 787, F-35, and CH-83K. In terms of current period profitability, AEC delivered 23.9% adjusted EBITDA margin for the quarter, well ahead of our expectations. We delivered strong 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 additional profitability improvements. I already mentioned that we currently are producing LEAP components at a rate higher than that at which we're delivering them and expect to continue to do so through the end of the year. We are monitoring 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 lip engine. We do not have additional insights beyond what has been publicly reported into the likely path for that aircraft return to service. As we have indicated before, the somewhat unique structure of that program, which is being operated under a cost plus fee arrangement, mitigates some of the financial impact of any LEAP production changes. However, while our gross profit rate on the LEAP program is likely to be relatively stable, If the slowdown were to extend significantly into 2020, it would clearly create top-line pressure for the segment. Overall, I continue to be very excited about the future for AEC. I believe that our focus on new business development, advanced technology, operational excellence, and meeting customer needs position us for ongoing future success. Turning to machine clothing, for Q3 2019, on a currency neutral basis, we delivered net sales almost 3% below a strong Q3 2018. However, year to date, on the same basis, net sales are roughly flat to the prior year. We have previously said that we expect more than packaging, tissue and towel, and pub-grade PMC cells increases to more or less offset decline in publication-grade PMC cells. This quarter's currency neutral results supported that expectation. We delivered low single-digit year-over-year growth on products for both packaging and with significant double-digit declines in products for publication brands. We are very pleased with our profitability this quarter. Even with the lower volume and resulting lower fixed cost leverage this year, we delivered gross margins of 52.4% compared to 50% last year. We monitor the competitive environment very closely, particularly at times like this when there is toughness in the end markets, and we remain confident in our competitive position. We believe that our cost advantage, driven by both scale and continuous improvement manufacturing initiatives, combined with our superior customer service and technology leadership, position us well to compete in the marketplace and are driving our exceptional profitability. With that, I would like to turn the mic over to Steven, who will provide more details on the quarter and our guidance for the full year. Steven?