Albany International Corporation

Okay, ladies and gentlemen, thank you everybody for holding and welcome to the Albany International Conference call. Second quarter conference and at this time all participants are on listen-only mode. We will have a question and answer session at a later time. Which instructions will be provided at this time? Let me go ahead and transfer your conference call to Mr. John Hopps, Director, Investor Relations. Go ahead, Mr. Hopps.

Thank you, Ernie, 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 numbers. For the purpose of this conference call, those statements also apply to our verbal remarks this morning. where we will make statements that are forward-looking that contain a number of risks and uncertainties, among which are the potential effects of the COVID-19 pandemic on our operations, the markets we serve, and our financial results. For a full discussion, including a reconciliation of non-GAAP measures we made use on this call for their most comparable GAAP measures, please refer to both the earnings release as well as our SEC filings, including our 10-K. Now I turn the call over to Bill Higgins, President and Chief Executive Officer, who will provide some opening remarks. Bill?

Thank you, John, and good morning, everyone. Welcome. Thank you for joining our second quarter earnings call. On multiple fronts, Albany completed an outstanding second quarter. In this pandemic environment, we continue to operate with health and safety as our top priority. We drove continuous improvement and efficiencies throughout operations. We managed the supply chain with discipline and adaptability. We continued to do a great job for our customers with outstanding performance in on-time delivery and quality, and we delivered record gross margins and adjusted EBITDA margins in both segments. Stephen and I will provide more detail, but first I want to extend my gratitude to our employees around the world. Our teams have risen to the challenge and delivered great results while keeping health and safety at the forefront of everything we do. And this pandemic is not over. Unfortunately, we have to consider it a marathon, which requires stamina and resiliency. I'm proud of how our teams have responded and how they continue to work together to get the job done for customers and shareholders. Make no mistake, it was a challenging quarter. And I thank every member of the team for the extra efforts. Great job and a great quarter. Last quarter, I spoke at some length about our management and operational response to a global pandemic. Today, our top priority remains maintaining the health and well-being of our employees. Our COVID-19 task force continues to meet on a regular basis, reviewing each location's situation, upgrading safe procedures as we learn more, and sharing best practices across the company. We've been relentless to ensure a safe working environment and cannot become complacent, particularly since a number of communities where our plants are located have become recent hotspots. I'm extremely proud of the Albany team and the outstanding operational and financial performance in the second quarter. We reported GAAP EPS of $1 per share this quarter, down 5% from last year's second quarter. Our adjusted EPS of $1.09 was unchanged from last year's result. This is commendable considering the significantly lower revenue from the LEAP program during Q2 and the challenges of COVID-19. Improved operational performance across our machine clothing and engineering composites business played an important role in mitigating the impact from the lower LEAP revenues in the quarter. In the machine clothing segment, We have a seasoned leadership team and workforce that has demonstrated time and again it knows how to manage in a tough marketplace. They simply hit it out of the park this quarter. Gross margin adjusted EBITDA margin expanded 270 basis points and 460 basis points, respectively. As a result, adjusted EBITDA grew $6.5 million, or 11.5%, on flat revenue to a record adjusted EBITDA margin of 41%, simply a great performance. This stellar performance benefited from our strategy to be the preeminent leader in machine clothing globally, which is built on years of investment in new technology, global repositioning of our factories, and a focus on higher growth value-added markets, such as tissue and packaging. We take advantage of our global footprint to serve customers locally. We continue to invest to develop a best-in-industry product portfolio and back it up with technical sales and service support. and we work hard to apply lean and continuous improvement tools to improve capacity utilization and operational efficiency. While the overall market has been challenging in terms of top-line growth, our market positioning, technology leadership, and product improvements are focused on delivering value to our customers so they can improve their plant efficiencies. In response to the long-term decline in publication grades, we've made special investments in packaging and tissue technologies. Packaging and tissue have a higher long-term growth prospect and now comprise almost 60% of our revenue, while publication grades have declined to less than 20%. We expect long-term erosion in the printing and writing paper markets to not only continue, but to be accelerated by the COVID pandemic and the accompanying shift to digital media and video conferencing. While we still expect long-term GDP-driven market growth in non-publication grades, we're starting to see COVID-affected changes in order flows from our customers in different regions of the world. On a positive note, Chinese order activity is on the upswing after weakness earlier in the year, as China has rebounded. On the other hand, in the rest of the world, including the rest of Asia, Europe, and the Americas, we've seen orders slowing down. Some customers who placed incremental orders in the early days of the pandemic as a risk mitigation to ensure their supply chain continuity have pushed those orders to the right. Combined with the sharp contraction in economic activity we've witnessed globally, we expect top-line headwinds during the second half of 2020 and into 2021 for the machine clothing segment. Additionally, we expect to see pressure on margins driven by lower volumes and mixed shifts away from some of our higher-margin markets. Our engineering composite segment also performed exceptionally well, particularly in driving profit to the bottom line. despite managing through COVID-19 challenges and the ongoing temporary closures of our lead production facilities, which accounted for the majority of our year-over-year sales decline. Last quarter, we discussed the strength and resiliency of our military and defense programs. We're on good, solid military programs, which now make up over a third of our annual revenue in the engineering composite segment. Here, we continue to invest to improve our technology, products, and operations. We achieved record levels of on-time delivery performance this quarter, and based on our growing reputation for reliability in terms of quality, service, and delivery, we continue to pursue additional work with these key customers to grow this portion of our business. As reported earlier this year, we have increased our work scope on the F-35 program, which is even more encouraging long-term as Japan is set to acquire over 100 F-35s. The commercial aerospace industry has been hit hard by the COVID pandemic. As you'll recall, earlier this year, we announced the temporary closure of all three of our LEAP production facilities in New Hampshire, Mexico, and France due to the Boeing 737 MAX and Airbus A320neo production delays and reductions. We've also had to undertake a reduction in force, primarily at those three LEAP facilities, but also including other SG&A and production personnel. While regrettable, this move is required to balance our workforce with our expected revenue as the market recovers. The third quarter should see the gradual resumption of leaf production operations at these facilities. We've continued to work very closely with Saffron to assure a safe and efficient restart to production. During the third quarter, we'll start to see the impact of Boeing's announced cuts in 787 production. We expect our production rate of 787 components in the back half of the year to be about 50% of the rate at which we were producing in the first half of the year. Longer term, we're happy to announce that we've been awarded a contract to expand our production of 787 fuselage frames and expect to begin producing 787 aft section fuselage frames beginning in late 2021. This new business is further evidence of the great work our teams are doing serving our commercial aerospace customers with complex composite components. Now let me make a few comments about our priorities going forward. First, our top priority will be the safety and well-being of our employees. Second, we'll continue to drive operational improvements to achieve efficiencies within our plants and to deliver great service to our customers. And third, we're maintaining our focus on new product and technology development. The changes this pandemic will bring will create new opportunities for our customers and for our products and technologies, such as next-generation material belts for tissue production and advanced 3D woven composites for commercial and military aerospace applications. We have a solid balance sheet and plan to continue to use it to invest in promising new technologies, processes, and products that will benefit our customers and add value for our shareholders. And now Stephen will provide more detail on the quarter and outlook. Stephen?