Albany International Corporation

This conference is being recorded. Ladies and gentlemen, thank you for standing by and welcome to the Albany International Third Quarter Earnings Call. At this time, parties are in a listen-only mode. We will conduct a question and answer session later. Instructions will be given at that time. If you should require assistance during the call, you can press star and then zero. And as a reminder, this conference is being recorded. I'd now like to turn the call over to our host, Director of Investor Relations, Mr. John Hobbs. Please go ahead, sir.

Thank you, Brad, and good morning, everyone. Welcome to Alderney International's third quarter 2021 conference call. As a reminder for those listening on the call, please refer to our press release issued yesterday afternoon detailing our quarterly financial results. Contained in that text is a notice regarding 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. Today, 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 may use on this call to their most comparable GAAP measures, please refer to both our earnings release of October 25th, 2021, as well as our SEC filings, including our 10-K. Now I'll turn the call over to Bill Higgins, our President and Chief Executive Officer, who will provide opening remarks. Bill?

Thank you, John. Good morning. Welcome, everyone. Thank you for joining our third quarter earnings call. We're pleased to report another good quarter of results. We executed well, and we continue to do a great job for our customers on many fronts in quality, delivery, service, and our technology partnerships. Our supply chain teams work 24-7 to overcome unprecedented logistics challenges and material shortages to keep our factories supplied. And I'm most pleased that we achieved a record level of performance in safety, something our teams have been working hard at in all of our plants around the world. As a company, we delivered GAAP EPS of 95 cents, 83 cents on an adjusted basis, on $232 million in revenue, an increase of nearly 10% from Q3 last year. Our machine clothing segment continues to fire on all cylinders and grew sales by 11% compared to Q3 last year, with excellent profitability and free cash flow generation. Engineered composites delivered top-line growth of nearly 7% and performed well as we worked toward the upturn in commercial aerospace. Our profitability was solid with gross margins of 40%, operating margins of 19%, and adjusted EBITDA margins of 26%. And we continued our strong free cash flow generation, over $40 million in the quarter. We have low debt and a healthy balance sheet, and we look forward to continuing solid performance from our machine clothing segment and gradual recovery in commercial aerospace. As we mentioned last quarter, long-term secular trends are favorable. and Albany's market positions, global footprint, and product development take advantage of these trends. In our engineered composite segment, we expect commercial aerospace to gradually improve, with narrow-body aircraft demand improving before wide-body demand. Consequently, we're hiring employees and planning for a ramp-up in lead production, driven by Airbus A320neo and Boeing 737 MAX growth. We're coordinating with Safran to expand production in our three lead facilities in the U.S., France, and Mexico. We see positive signs in international travel bookings as borders reopen and people have begun to travel internationally, although we don't expect any near-term pickup in wide-body production demand, such as for our Boeing 787 composite frames line, as there's still inventory in the system and international travel has been slow to recover. Our AEC businesses continue to perform well on our military platforms, Sikorsky's CH-53K helicopter, Lockheed Martin's F-35 joint strike fighter, and JASA missile programs. We're fortunate to be on excellent programs and our teams are executing well. We also continued our pursuit of new customers and new applications for advanced composites. During the quarter, we announced our technology collaboration with Spirit Aerosystems to apply our advanced 3D woven composite technology to hypersonic vehicles and take advantage of our proprietary 3D woven composites in a high temperature environment, providing both structural robustness and thermal protection. and build in on our proven ability to industrialize 3D woven composites at high volumes. This is an example of the intense collaboration our teams are good at, working closely with our technology partners in the design, development, and commercialization of the most advanced composite applications. In addition to working on engine component applications with our partner, Safran, we continue development of wing applications with Airbus Wing of Tomorrow program and other composite programs and commercial and defense applications. Our machine clothing segment continued to perform exceptionally well. Our engineers and sales and service teams in MC work closely with key customers to develop the next generation of belt materials for improved operational efficiency, performance, and durability. And customers value our service, technical expertise, and innovation. We saw good demand in the quarter for new products in all product lines. Demand in MC's end markets has been resilient and particularly strong in packaging in the Americas. Tissue markets have held up, although demand is mixed and flat overall, as tissue machine utilization is below long-term averages and tissue producers are working through distortions caused by the pandemic's effect on away-from-home paper markets. This should improve as workers go back to offices and students are back in school. In other end markets, demand was strong in the quarter for corrugators, nonwovens, and building products. Even publication was better this quarter, likely a pause in the longer-term secular decline of printing and writing grades of paper. We're seeing significant logistics challenges in price inflation on various raw materials and wages. So far, supply chain management and operations teams have done an excellent job. They've been able to secure the materials we need to run our operations at only moderate increases in cost. In general, we strive to offset inflationary costs through productivity savings, but this time may be different as we don't see inflationary pressures abating anytime soon. If anything, conditions grew more challenging during the third quarter. Let me make a few comments on corporate governance and capital allocation before turning the call over to Stephen. In early August, the company moved closer to a single-class share structure following the secondary offering of nearly all of the Standish family's ownership in the company with their few remaining shares converted to Class A common stock. As a result, today there are more than 32.3 million shares of Class A common stock outstanding and less than 1,200 shares of Class B stock outstanding, which are held by two former employees. The transaction effectively created a conventional single-class governance structure for our shareholders. Regarding capital allocation, as we mentioned in the past, Our priority is to use our balance sheet first for organic growth investments, where we can add value for our customers, and then acquisitions that fit our strategy enable us to build on our technology leadership and market positions in both segments. Adding to these options, Albany's Board of Directors has authorized a $200 million share repurchase program, expanding the set of capital allocation alternatives we have at our disposal. We continue to look for acquisitions that advance our technology and market position at a fair price, and we're focused on value creation from both an organic and inorganic investment perspective. In summary, we had another good quarter. Our businesses are executing well. We continue to push the envelope in our technology development with new products in both segments, and secular trends in our end markets are favorable. So with that, I'll hand the call over to Stephen for more detail on the financials. Stephen? Thank you, Bill.