Albany International Corporation

And ladies and gentlemen, thank you for standing by. Welcome to the Albany International Fourth Quarter Earnings 2020 Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. If you should require assistance during the call, please press star, then zero. As a reminder, today's conference is being recorded. I would now like to turn the conference over to John Hobbs, the Director of Investor Relations. Please go ahead, sir.

Thank you, Brad. And good morning, everyone. Welcome to Albany International's fourth quarter 2020 conference call. 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 their associated reconciliation to GAAP. For the purposes of this conference call, those same statements apply to our verbal remarks this morning, where we will make statements that are forward-looking, containing 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 may use on the call to their most comparable GAAP measures, please refer to both our earnings release of February 10, 2021, as well as our SEC filings, including our 10-K. Now I'll turn the call over to Bill Higgins, President and Chief Executive Officer, who will provide some opening remarks. Bill?

Thanks, John. Good morning and welcome everyone. And thank you for joining our fourth quarter earnings call. Let me provide highlights on our 2020 performance, share my expectations for 2021, and comment on our strategy going forward. And then Stephen will cover our fourth quarter results and guidance for 2021 in more depth. We finished the year strong with fourth quarter results much better than expected. We delivered another solid quarter in a pandemic year that was challenging and unpredictable. Our operations demonstrated agility and a relentless focus to deliver great bottom line results, despite pressure on the top line and downturns in some of the end markets that we serve. And this was our story throughout the year. Beginning in early 2020, we took swift action to ensure the safety and well-being of our employees. Our teams worked tirelessly to reset our manufacturing and supply chains, and many times during the year to meet our customers' needs as they changed. We did a great job for customers and continued to drive efficiency and productivity improvements. We took early action to manage our costs well. And consequently, we were able to deliver outstanding margins for our shareholders and generate solid free cash flow and add to our strong balance sheet. Also notable, our customer performance metrics are at record levels for service, on-time delivery, and quality. Our safety performance ended the year as the best in the history of the company. Our factory productivity and supply chain initiatives contributed to our bottom line success, and we managed to launch a number of employee training and development initiatives. I'm most proud of how our employees found ways to work safely and how they've innovated to not only do our work, but to improve how we do it. It's not an accident that we completed well over 100 Lean Kaizen improvement projects in 2020, despite the restraints of social distancing, working remote, and following precautions for COVID-19. In December, we recognized these accomplishments by our employees, and we're pleased to award all of our employees around the world, excluding the executive team, with a $1,000 bonus of gratitude. As I've said, I'm proud of how our employees pulled together to support one another and work safely during this pandemic and continue to do a great job for customers. Now let me make a few comments about the outlook for this year and beyond. Our machine clothing segments and markets appear to be gaining strength. We exited last year with a solid order book, which bodes well for this year and beyond as the global economy improves. As a leader in machine clothing, we're well positioned to grow with our customers, especially in the higher growth areas of tissue and packaging. Our longstanding strategy of continuous investment in technology and product development, along with our operating discipline, has served us well during the worst market downturn in more than a decade. Consider this, in the middle of a global pandemic recession, our MC segment expanded its adjusted EBITDA margin by 170 basis points in 2020. And more impressive, since 2015, our MC segment has expanded its adjusted EBITDA margin by more than 500 basis points. We're also optimistic about our engineering composite segment's future, although its longer term since 2021 still pretends to face headwinds from the pandemic and the downturn in commercial aerospace and airline travel. Through 2021, we're planning for slower production on some lines in AEC because of excess inventory in our facilities and inventory in the supply chain of our customers, particularly for components for the Boeing 737 MAX, the 787, and to a lesser degree, the F-35. To continue managing our costs, and because of the recent downward revision by Boeing for 787 demand, We just yesterday implemented a reduction in our Salt Lake City workforce where we produced 787 frames. While 2021 is expected to be slower because of inventory destocking, we expect growth in engineer composites to resume longer term. We're well positioned in both military and commercial markets with solid programs such as the CH-53K, the JASM missile, the F-35, and LEAP. And our position on LEAP engines with Safran should see early growth in the recovery. since narrow-body aircraft, which the LEAP engine powers, are expected to lead commercial aerospace out of the recession, as domestic air travel is expected to recover first. Next, let me say a few words about our strategy. Albany International is a 125-year history of innovation in developing new materials that add value for our customers. We're committed to continuing this legacy with a focus on developing the next generation of engineering materials and advanced composites to help our customers improve their products and production processes. Our machine clothing segment is the leader in PMC because it offers a full range of the most advanced material belts used on paper machines, which operate at high speeds in a severe environment. We've earned a reputation for constantly improving our belts' technology, durability, and performance. And because of our advancements, our customers are able to produce higher quality paper products reliably at lower overall cost of production under demanding conditions. This is a technology-intensive collaborative partnership that our customers value. In our engineered composite segment, we continue to advance the state-of-the-art in advanced composites, including our proprietary 3D woven composite material used in the LEAP engine, fan blades, and fan cases. In 2020, despite the pandemic, we worked closely with Saffron to continue improving our 3D woven composite materials and to reduce our cost of manufacturing them. So as commercial aerospace rebounds will be even more competitive. We also expanded our collaboration with new customers and for new applications to diversify our customer base and develop future growth areas. Our technology development on the Wing of Tomorrow program with Airbus has continued through the pandemic. While this program is longer term, it's imperative that we get an early seat at the table. and bring our technologies to design the next generation of aircraft. In the medium and near term, we have other ongoing R&D and development efforts, what I call incubator projects, in both military and commercial areas. For example, our R&D team is supporting a major prime OEM in the development of next-generation hypersonic materials and structures using our proprietary 3D woven composite materials. We also have projects in unmanned vehicles, higher temperature materials, and thermoplastics. We believe the current downturn in commercial aerospace is transitory and that market forces in the long term will drive energy efficiency and ongoing replacement of metallic components with lighter composites. This trend will gain in importance as the industry seeks to reduce its environmental impact with the next generation of more efficient aircraft. Our 3D woven composite technology is commercially proven can meet the need for lighter weight and high strength, and we intend to grow our participation in the most demanding structural applications in aerospace. As a company, we remain committed to investing in technology and product development of advanced materials for organic growth. In fact, we're increasing our R&T budgets in both segments in 2021, and this is a critical part of our capital allocation strategy. Organic growth has been driven by not only our investment in hard capital, such as new products, tooling, and production equipment, but also by our investment in intellectual capital, the expertise, the time, and effort that are necessary for successfully developing new products and process know-how over time. We're disciplined in how we invest and the criteria we use to measure success. We guide our capital investment decisions based on expected returns to shareholders, and we direct capital to those programs with the best risk-adjusted returns. In summary, we're optimistic about the future. We have a solid balance sheet and strong free cash flow generation, which enables continued investment to grow. So with that, I'll hand it over to Stephen.

Thank you, Bill. Good morning to everyone. I'll talk first about the results for the quarter and then about our initial outlook for our business in the coming year. For the fourth quarter, total company net sales were $226.9 million, a decrease of 12% compared to the $257.7 million delivered in the same quarter last year. Adjusting for currency translation effects, net sales declined by 13.6% year over year in the quarter. In machine clothing, also adjusting for currency translation effects, net sales were down 6.6% year over year, driven by declines across most major grades of product, partially offset by growth in engineered fabrics. Once again, the most significant decline of over 21% on a constant currency basis was in publication grades, which represented about 17% of our MC sales in the quarter. However, we do see signs of a generally improving machine clothing market. First, While we did see year-over-year declines in packaging and tissue grades in the quarter, driven by the same factors that we discussed on our third quarter call, the year-over-year declines we saw in those grades in the fourth quarter were considerably smaller than we had seen in the third quarter. Second, segment net sales in the fourth quarter were sequentially higher than the third quarter and modestly exceeded our expectations. Engineered composites net sales, again after adjusting for currency translation effects, declined by 23.5% compared to last year, primarily caused by significant reductions in LEAP and Boeing 787 program revenue, partially offset by growth on the F-35 and CH-53K platforms. During the quarter, the ASC LEAP program generated revenue of a little under $25 million compared to $48 million in the same quarter last year. However, this quarter's ASC LEAP revenue was up significantly on a sequential basis, 48% higher than the third quarter, driven by the fact that all three of our ASC LEAP facilities were operational for the full fourth quarter. Fourth quarter gross profit for the company was $91.3 million, a reduction of 5.5% from the comparable period last year. The overall gross margin increased by 280 basis points, from 37.5% to 40.3% of net sales. Within the MC segment, gross margin improved from 50.2% to 50.9% of net sales, driven by favorable foreign currency exchange rates increased efficiencies, and product mix. AEC gross margin improved from 19.6% to 21.7% of net sales, driven primarily by a favorable mix in program revenues, partially offset by a lower net favorable change in the profitability of long-term contracts. While we did recognize a net favorable change in the estimated profitability of long-term contracts this quarter of about $500,000. This compares to a $3.3 million improvement recognized in the fourth quarter of 2019. Fourth quarter selling technical general and research expenses increased from $51.3 million in the prior year quarter to $54.8 million in the current quarter and increased as a percentage of net sales from 19.9% to 24.1%. The increase in the amount of the expense was driven primarily by higher incentive compensation expense and an increase in foreign currency revaluation losses from 1.4 million in Q4 of 2019 to 3 million this quarter. These items were partially offset by lower travel expenses in the fourth quarter of 2020 compared to the same period in 2019. I would like to note that the higher incentive compensation expense that we recorded in both the third and fourth quarters of 2020 included accruals at corporate, totaling $3.9 million across both quarters combined for the special $1,000 employee bonus that Bill referenced. Total operating income for the company was 35 million, down from 43.6 million in the prior year quarter. Machine clothing operating income decreased by 4.9 million, caused by lower gross profit, higher SDG&R expense, and higher restructuring expense, while AEC operating income fell by 2.1 million, caused by lower gross profit and higher SDG&R expense, partially offset by lower restructuring expense. Other income and expense in the quarter netted to about income of $490,000 compared to an expense of about $350,000 in the same period last year. The improvement was driven primarily by a more beneficial foreign currency revaluation effect in the quarter. The income tax rate for this quarter was 13.5%. compared to 24.8% in the prior year quarter. As a result of a foreign currency revaluation gain at an entity where no tax provision is required, the tax rate associated with our adjusted EPS is somewhat higher at 17.8%. That 17.8% tax rate is significantly lower than the tax rate for the full year. In 2020 as a whole, our tax rate excluding discrete items was 28.4%, which compares to 28% excluding discrete items for 2019 as a whole. The lower rate this quarter, due mainly to a true-up of earlier quarter's provisions, increased adjusted EPS by 12 cents this quarter. Had we known the final full year rate earlier in the year, that 12 cents would have been recognized as additional adjusted EPS in those earlier quarters. Net income attributable to the company for the quarter was 27.5%, a reduction of 5.5% from 29.1 million last year. The reduction was primarily driven by the lower operating income, partially offset by the lower tax rate and improved other income and expense. Earnings per share was 85 cents in this quarter, compared to 90 cents last year. After adjusting for the impact of foreign currency revaluation gains and losses, restructuring expenses, pension curtailment charges, and expenses associated with the SIRCOMP acquisition and integration, adjusted earnings per share was 89 cents this quarter, compared to $0.97 last year. Adjusted EBITDA fell 10.4% to $57.3 million for the most recent quarter, compared to the same period last year. Machine clothing adjusted EBITDA was $50.9 million, or 35.3% of net sales this year, down from $52.8 million, or 35.1% of net sales in the prior year quarter. AEC adjusted EBITDA was 21.3 million or 25.7% of net sales down from last year's 24.2 million or 22.6% of net sales. Turning to our balance sheet, net debt declined by about 46 million during the fourth quarter. As a result, our absolute leverage ratio declined from 0.89 at the end of Q3 to 0.74 at the end of Q4. The reduction in net debt was principally caused by strong operating cash flow generation in the machine clothing segment and lower capital expenditures during the quarter due principally to a reduction of capital expenditures on the LEAP program. I would now like to turn toward the coming year by comparing it to 2020 and by providing our resulting initial financial guidance for 2021. We expect to deliver another year of strong performance in the machine clothing segment. For the full year 2020, we delivered net sales of about 573 million, down 5% from about 601 million in 2019. Orders in the fourth quarter of 2020 were up about 6% compared to the fourth quarter of 2019. This was a marked change from the first three quarters of the year when cumulative orders in this segment had been down compared to the same period in 2019. This gives us some comfort as we head into 2021. In particular, we do expect that sales in Q1 of 2021 will be up compared to the relatively low level of sales delivered in Q1 of 2020. We are providing initial net sales guidance for the segment of 570 to 590 million. From a profitability perspective, machine clothing had a very strong year in 2020, delivering 216 million of adjusted EBITDA. However, there are three effects that will make it hard to replicate those results in 2021. First, as we have previously disclosed, we benefited from very favorable foreign exchange rates in 2020, particularly with respect to the weakness of the Brazilian real and Mexican peso, both of which are currencies in which we are short in that we have more expenses than revenues in both. Overall, net favorable foreign exchange rates contributed over $6 million of adjusted EBITDA in 2020 compared to the prevailing foreign exchange rates in 2019. However, some of those favorable effects had dissipated by the end of the year. For example, the Mexican peso had weakened from under 20 pesos per US dollar in Q1 of 2020 to almost 25 pesos per dollar in Q2, but by the end of the year, the rate was back under 20. Second, In 2020, due to the COVID-19 pandemic, we incurred a significantly lower level of travel expense in the segment than in prior years. While this helped the bottom line to the tune of about $6 million, this was not ideal from a business perspective, as we depend on strong customer relationships to develop insight into customer needs and to drive product development and support. We are expecting to resume our prior level of travel during 2021, although in Q1, travel will likely continue to suffer from some COVID effects. Third, we continue to see pressure on input costs, particularly right now with respect to logistics, where sea, rail, and air freight costs are all considerably higher than they were 12 months ago. In a typical year, we see over $4 million of input cost pressure, and there is reason to believe that in 2021 this could be higher. While, as is typical, we believe that we will be unlikely to be able to recover all of that increased cost through pricing increases, we will of course work to implement cost improvement initiatives to offset as much of the remainder as possible. Notwithstanding these three pressures on profitability, we expect the machine clothing segment to deliver another strong year of profit performance and are providing initial adjusted EBITDA guidance for the segment of 195 to 205 million. Turning to engineered composites, 2020 was a challenging year for the segment from a revenue perspective. Overall, revenue in the segment declined by about 125 million in 2020 compared to 2019, driven principally by lower sales on LEAP, 787, 7, and other commercial programs, offset by growth in military programs. Unfortunately, in 2021, we are going to see a continuation of some of the same trends, with 2021 shaping up to be a year of finished goods inventory destocking across our customer supply chains. On the ASC LEAP program, We expect to continue to produce components for the Leap 1B variant, which powers the 737 MAX, at very low levels. While the 737 MAX is now re-entering service, there is considerable finished goods inventory in the channel, at Boeing, at Safran, and in our own facilities, on which we have already recognized revenue, as we recognize revenue at the time of production, not delivery. In 2021, we currently expect to make components for fewer than 150 LEAP 1B engines, far below the 1,000-plus engine shipsets we would expect to deliver annually in the long term. On LEAP 1A, there is a much lower level of finished goods inventory in the channel, and we expect to produce components for well over 500 engine shipsets in 2021. Overall, while the total number of ASC LEAP engine shipsets produced in 2021 is expected to be somewhat higher than that produced in 2020, this is offset by the absence of certain recoverable non-recurring expenses that were recognized as revenue in 2020, resulting in roughly flat revenues for ASC from 2020 to 2021. Our next largest commercial program to produce frames for the Boeing 787 also has finished goods inventory, the stocking challenges. In 2020, we had already seen some effect from Boeing's decision to reduce the 787 build rate. And our revenues from the program in 2020 were down over 20% from 2019. However, as Boeing reduced the 787 build rate further, there has been an increased buildup of our finished goods in Boeing's supply chain, resulting in drastic reductions in order quantities for delivery in 2021. In addition, we expect our startup of production of the 787 at fuselage frames will now shift from late 2021 into mid-2022 as it will take longer to consume the parts already in the supply chain that were produced by the previous supplier. Overall, in 2021, we expect our revenues on the 787 frames program to be $30 to $35 million lower than we recognized in 2020. On the military side, we support the Lockheed Martin F-35 through several contracts for different parts, including wing skins, edge seals, and engine components at both our Salt Lake City and Burnie locations. F-35 has been and remains a very important platform for us. In 2020, we recognized over $85 million of revenue on the platform overall, up more than 25% from what was recognized in 2019. However, during 2020, Lockheed Martin produced finished F-35s at a rate lower than they had originally predicted due to supply chain issues caused by the pandemic and consumed fewer sustainment parts. As a result, during 2020, there was a buildup of our finished goods in the F-35 supply chain, a situation that we expect will reverse itself in 2021. This year, to rebalance the supply chain, we expect that our build rate will be lower than the rate at which Lockheed Martin is completing aircraft. We now expect our F-35 revenues in 2021 to be more than $15 million lower than we recognized in 2020. We see similar patterns in several smaller commercial programs across the segment, where the revenue on those programs in 2021 will be close to $15 million lower than recognized in 2020. All of these reductions will be offset by growth on other programs, most notably on the CH53K. Overall, for the engineered composite segment, we're providing initial guidance for net sales of $275 to $295 million. Turning to the engineered composite segment profitability, 2020 was a strong year with adjusted EBITDA margins of over 26%. largely enabled by three factors. One, strong operating performance in the period, as evidenced by about $10 million in net favorable adjustment to long-term contract profitability. Two, a sales mix benefit, as the majority of the revenue declined from 2019 to 2020 was on the ASC LEAP program, which is a lower than average profit margin. And three, despite the decline in revenue, there was limited loss of fixed cost absorption as the cost plus nature of the ASC LEAP program allowed us to still recover all of the fixed costs of operating our three ASC facilities. Unfortunately, those factors will not help us again in 2021. First, the lower revenue in 2021 at our non-ASC facilities most notably our Salt Lake City operation, where all of our 787 work and the bulk of our F35 work is performed, will create upward pressure on plant overhead rates. While, as Bill mentioned, we have announced a workforce reduction of our Salt Lake City facility, that alone will not offset these rate pressures. In such an environment, it will be difficult for us to achieve the lower unit production costs required to deliver significant improvements to long-term contract profitability. This is a change from the past few years when a growing revenue base at our non-ASC facilities created a tailwind to long-term contract profitability. Second, in 2021, we will see a product mix hit as a roughly $40 to $50 million revenue decline we expect this year is on fixed price programs which have a higher than average profit margin. And third, unlike 2020, we will suffer from a loss of fixed cost absorption due to the fixed price nature of the programs with declining revenues. As a result, the decremental margins will be much larger than the average margins on those programs. In fact, it is not atypical for our fixed price programs to have EBITDA contribution margins in the 30 to 40% range. As a result of the impact of those three factors in 2021, not only do we expect the top line reduction I discussed earlier, but we also expect the EBITDA margins for the segment to fall from the 26.1% level delivered in 2020 into the low 20s. Therefore, we are providing initial 2021 guidance for engineered composites adjusted EBITDA of 55 to 65 million. At the total company level, we are providing initial 2021 guidance as follows. Revenue of between 850 and 890 million. Effective income tax rate of 28 to 30%. depreciation and amortization of between 70 and 75 million, capital expenditures in the range of 50 to 60 million, gap and adjusted earnings per share of between $2.40 and $2.80, and adjusted EBITDA of between 195 and 220 million. While we are not providing explicit cash flow guidance for 2021, we do expect that the free cash flow we generate in 2021 will be well above the roughly 100 million generated in 2020. I would also like to note that in 2021, we expect R&D expenses to be more than 25% higher than they were in 2020, reflecting the ongoing investments in both segments that Bill referenced earlier. Returning to the present, we are very pleased with how the company performed in 2020 overall. Despite the challenging operating environments, both segments met our customers' needs and delivered outstanding performance, all while maintaining a safe working environment. While it does appear that we have one more year of Channel D stocking ahead of us before we return to growth in the engineered composite segment, We remain very excited about the future prospects for both segments. With that, I would like to open the call for questions. Brad?

Of course, and ladies and gentlemen, if you wish to ask a question at this time, please press 1 and 0 on your telephone keypad. You may withdraw your question at any time by repeating the 1 and 0 command. If using a speakerphone, please pick up your handset before pressing the numbers. And once again, if you have a question at this time, please press 1 and then 0. Our first question today comes from the line of Peter Arment with Baird. Please go ahead, sir.

Yes, good morning, Bill and Stephen. Congrats on the strong results given the challenging year. I guess I wanted to just first touch base, Stephen, on the AEC revenue guidance kind of implies, I guess if I look at the midpoint of revenues around $71 million a quarter, which I – And I know that's probably not how it's going to play out, but maybe if you could just walk us through how you think the revenue cadence at maybe a high level, given all the moving pieces around destocking.

So, yeah, look, I'm not going to get into quarterly guidance. We don't provide quarterly guidance, although I don't expect it to be terribly lumpy as we go through the year. I'm not given the quarterly guidance you suggested, just dividing the midpoint by four, but you're probably not that far off. Your general approach is nominally correct. The challenge we face is while ASC revenues will certainly be fairly flat, they were more lumpy in 2019. So those will be spread more evenly throughout the quarters, which should mean that for ASC, no quarter is as bad as the worst quarter we saw in 2019. However, we have to layer on top of that 787 and F35 declines and the other smaller commercial programs, the effect of which will be spread throughout the year. In 787 and F-35 and both, there is considerable inventory in the channel that needs to be cleared out before we can start to produce and recognize revenue. It's not as if that means we'll take a holiday from production in Q1. That decline in production will be spread throughout the year. We'll be producing a little ahead of the need in some ways, if you like, to think in the first half of the year and be catching up as they'll be catching up with us as we get in the back half of the year. So we have somewhat level loaded those production quantities throughout the year as well. And Bill, I don't know if you have other thoughts on that.

I would just add, I think the programs that are where we're destocking through the year, we're projecting and planning for a low level of production we'll probably see some pickup in the back half of the year. And we have other growth programs like the CH53K. As the volume longer term grows, there may be a little bit more in the back half of the year as we go into 2022 and expect to get beyond destocking and then grow from there. So it'll be probably a little bit more in the back half of the year. But as Stephen said, I don't think it'll be real lumpy.

Okay. That's really helpful. And then just around just the sensitivity of the EPS range and adjusted EPS that you provided, just I think we struggle a little bit of what are some of the factors that maybe we're not thinking about that implied you getting to the lower end of your range. Could you maybe walk us through maybe some assumptions there that you were thinking about?

Well, it's derived from the lower end of our EBITDA range for the two segments. There's obviously the table in the earnings release that shows how we get from our adjusted EBITDA range range to our EPS range. So assuming the question is really at the adjusted EBITDA range, look, from an AEC perspective, we mentioned the headwinds we face now on our long-term contract profitability with the declining volumes placing upward pressure and rates. And that's something we're going to have to manage very carefully through the year. It certainly generates the risk that you could actually have adjustments to long-term contracts, which would be unfavorable. We obviously are not planning on that, but there's certainly a risk there. So that's one of the biggest risks on the AEC side. On the machine clothing side, there's certainly FX risk, which could push us towards the bottom end. There's the inflation on the input costs I talked about, which we always try to offset with cost reduction initiatives, given we are unable to given the competitive environment, to raise prices to completely offset those rising input costs. We try to identify cost-saving initiatives to offset those increases, but there's no guarantee as we enter the year that we'll be successful in offsetting all of those. And there's also a bit of a mix issue of just exactly where the spread is going to come as we go through the year for machine clothing. As we've discussed previously, there's certainly regional differences in margin and even some margin differences between grades of product. And so there is certainly a product mix risk which could drive us towards the lower end of the range as well. Okay.

And just lastly, thank you for that, Stephen. And then just lastly, Bill, maybe just your thoughts on you guys are generating a lot of cash and you've got a really strong balance sheet. You know, just thoughts on how you're thinking about M&A in this environment just given the pandemic. Thanks.

Yes, sure, Peter. We are generating great free cash flow and paying down debt. And our primary objective, as I said, is going to be the organic growth investment we make and the programs we're working on. But we will consider M&A. We're particularly interested in things that would help us advance our technology, our processes, and the product development around engineering materials and advanced composites. So it is something that we would consider if the right property came along. We've been you know, fairly conservative in nature and, you know, prices have been high over the past year. So, you know, we'll keep looking. But if the right property came along, we'd consider it.

Thanks very much.

And we do have a question from the line of Gautam Khanna with Cowan and Company. Please go ahead.

Yeah. Hey, guys. Good morning. This is Dan on for Gotham. So listen, I wanted to ask a little bit more detail on the F35D stock and just kind of the puts and takes behind that and how long that could last. And I guess kind of like what rates were you producing at versus what they delivered this year? And I mean, there's still a pretty substantial ramp in deliveries through 22. So kind of just how you expect that to play out? Thanks.

Hey, Dan, this is Bill. I think that maybe the first part of the question, and Stephen could add some color to it, is, you know, we're expecting this, we'll work this through this year in 2021. The program for us, the F-35 program, is a great program. It's been growing quickly. We've been, you know, we added production capability and grew with it. you know, just came to find out somewhat of a surprise at the end of the year that, you know, there was inventory in the channel that we're getting ahead of the overall rate that Lockheed Martin was working at. So it's a short-term revision to the growth rates longer term. So I think in 2022, we'll be back at a healthy growth rate on the program.

Okay, got it. I guess... As a follow-up to that, is it kind of like that's a pretty big snapback? If, say, Lockheed goes to delivering 170 and 22, then that's a pretty big step up, right, for you guys? Or is it already that all of that inventory is in the channel?

I think it is a step back. I don't know that I would describe it as a snapback. We'll manage it. you know, over time so that it's a, you know, a well-managed operational increase. But, you know, we do expect it to come back beyond 2021. And as I said, it's a good program.

Okay, cool. And then just on the, you guys have the saffron cash true up, right? That occurs, is it partially in Q4 and partially in Q1? What was the amount of that?

Yeah, we were expecting a true-up in Q1. Stephen, I don't know if you have the numbers on that.

We haven't disclosed that number. You know, it's typically, we've said in prior years, being high single digits of millions of dollars. And at this stage, we're not giving any further guidance than that.

Okay, sounds good. And then just lastly, how's the progress at reopening the LEAP facilities? Have you run into any snags, or is it going pretty smoothly?

It's gone remarkably well. We brought all the three facilities all back online after they were closed, you know, partially closed in the second and third quarters, and production's picked right back up. We're still working on improving the product, as I said in my remarks, and it's gone very well. We've made some strides in manufacturability of the product while things were slow, and we're happy with how it's going right now. We're just waiting for the rest of the market to pick up.

Okay. Sounds good. Thanks, guys.

And we do have a question from the line of Steve Tusa with JP Morgan. Please go ahead.

Hey, guys. Good morning.

Good morning, Steve.

Um, so I, I, I think, um, we counted roughly in the way of kind of, uh, 60 to 65 million of revenue headwinds at AEC from your comments. Um, your guide is down 40 to 45 at, at the midpoint, I guess. Um, what, what is, are we kind of calculating that correctly, correctly and kind of, uh,

what what would be growing and i guess um uh is the 60 to 65 uh you know how much of the 60 to 65 million is is d stock yeah so uh let me take that first uh so your math is generally correct it's about 60 to 65. the growth is coming we mentioned ch 50 through k and some other you know new programs we have on board that are that are growing that uh uh that we have not talked about and not talking about at this stage. So they're smaller in nature right now, delivering some of the growth that you see there. The 60 to 65 million, it depends how you count D-Stock. The vast majority of it is D-Stock, quite frankly. If you look at the primary drivers being LEAP 1B, 787 and F-35, all of those are D-Stock. And I think if you add those three together, you get into that $50 million to $55 million range of your $60 million to $65 million. While it's difficult to predict the future, F-35 appears to certainly be a transitory destocking event, and we should get back on track after Lockheed manages to get back to their planned build rate post the pandemic supply chain challenges. You know, on 737 and 787, the big question there is just, you know, what does Boeing do with build rates as we go forward? Obviously, we're not relying on a lot of, you know, revenue this year. So our 2020 revenue, or 2021 revenue, sorry, is unlikely to be significantly affected by Boeing's decision on build rates. But the question as to how quickly that recovers as we go into 2022 is, It really depends on the rate at which they build and therefore consume that channel inventory. So it's a little difficult to predict the exact quarter right now where we return to growth on those programs. But in sum, the vast majority of it is destocking.

If you look at the kind of the 3-7, I would assume that that flips a bit in 22 as these guys kind of start to think about a bit of an increase in 22. Would you expect that to kind of go back to them stocking more regularly kind of ahead of those potential production rate increases if they start to ramp a little bit there?

Yeah, the one caveat being the back end of your sentence there, if they start to ramp a little, if they meet their publicly stated build rates, then sure, we would expect it to flip in 2022. They face a lot of challenges as well in getting back up to rates. That's why we're not guiding 2022 at this stage, and I don't want to pretend to know exactly when in 2022 that's going to flip on us.

Right, but the headwind goes away. You'll be normalized on that front from what you know today by the end of 2021. So it's a hit to you guys today. It's a cash benefit to your customers, but then that goes away in 2022 because it would be more aligned. Is that right?

That's what we would expect, yes. Okay, great.

On LEAP-1B, I was going to say the other thing is on LEAP-1A, we'll watch Airbus, too, as we exit 21 with the production rates for the A320neo. They talked about raising the build rate, so that would help us, too, as we go beyond 21.

Right, so it's really a 1B kind of dynamic that you're most talking about. Okay, great. Thanks for all the detail. I appreciate it. Thank you.

And if there are any additional questions at this time, please press one then zero on your telephone keypad. And it does appear at this time, there are no further questions in queue. I'll turn it back to Mr. Higgins for remarks.

Thank you, Brad. And thank you everyone for joining us on the call today. We appreciate your continued interest in Albany International. And I would like to reiterate my thanks to Albany's employees across the globe for delivering a safe and successful 2020. Thank you, everybody.

Have a good day. And, ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Conferencing Service. You may now disconnect.