Albany International Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Albany International fourth quarter and full year 2022 conference call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. Should you require assistance during the call, please press a star then zero and an operator will assist you offline. And as a reminder, your conference is being recorded. I would now like to turn the conference over to your host, John Hab, Director of Investor Relations of Albany International. Please go ahead.

Thank you, Lois, and good morning, everyone. Welcome to Albany International's fourth quarter and full year 2022 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 the text of the release 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'll make statements that are forward-looking, that contain a number of risks, 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 in this call to their most comparable GAAP measures, please refer to both our earnings release of February 13th, 2023, 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. He'll provide opening remarks.

Bill? Bill Higgins Thank you, John. Good morning. Welcome, everyone. Thank you for joining our call. We're pleased to report another strong quarter, capping a good year in 2022. Over the course of the year, our team successfully navigated multiple challenges, including continuing COVID pandemic, the China lockdown, supply chain shortages, higher inflation, tight labor markets, threats of recession, and geopolitical uncertainty. Despite these headwinds, we were resilient and delivered solid results for shareholders. Revenue and adjusted EBITDA continue to trend higher, approaching 2019's record highs. Sales grew 12% year over year to $1,035,000,000. Gross margins exceeded 37%, and adjusted EBITDA margins were 24.5%. We had a good year, and our long-term strategy is on track. The past year benefited from our rock-solid balance sheet, our global leadership position in machine clothing, organic growth from our aerospace composites business, and our employees' outstanding operational performance. We continue to focus on customers, doing a great job in product quality, reliability, delivery, and technical service. We won new business and brought new products to market. And our strong balance sheet allows us to invest in our businesses and execute our growth strategies. At the segment level, machine clothing's operational performance and financial results continue to be impressive. For the full year of 2022, net sales were up nearly 2% on a constant currency basis, making up $10 million in revenue loss from our Russian market exit. The machine clothing segment delivered excellent profitability with gross margins exceeding 50 percent and adjusted EBITDA margins exceeding 37 percent despite the inflationary environment. The engineer composite segment grew a full year net sales 37 percent, nearly 40 percent on a constant currency basis with significant contributions from both new work on the Sikorsky CH53K helicopter and recovering commercial aviation production on the LEAP program, driven by the ramp and narrowbody aircraft production of the Boeing 737 MAX and Airbus A320neo aircraft. Adjusted EBITDA was $79 million, up about $10 million from 2021's results. As we enter the year 2023, we expect demand for machine clothing products to be relatively healthy. We benefit from our reputation for exceptional reliability, quality, and delivery. Our focus on higher value added end markets helps drive profitability while the replenishment nature of our consumable belts results in relatively steady demand. Tissue markets where Albany has a leadership position hold up better in volatile economic times. Packaging and printing grade markets tend to be more sensitive to economic activity. You may recall that when we entered the fourth quarter in 2022, demand in our machine clothing markets was strong. And through the fourth quarter, demand in the Americas stayed healthy and remains strong today. European and Chinese market demand slowed somewhat in Q4 and now appears to be recovering on the reopening in China and the easing of European energy concerns. Overall, we're encouraged that machine clothing demand should hold up in 2023. In AEC, the longer-term outlook for growth remains healthy, driven by recovering narrow body production and our portfolio of great programs in defense. In the near term, as you've heard, demand in the commercial aerospace market is outstripping the industry's ability to supply. As a result, the year-over-year growth driven by commercial aircraft production is more muted than we had anticipated after a year of significant top-line growth in 2022. Once supply chains are improved with growing passenger travel and airplane demand, we would expect to see production growth for the Boeing 737 MAX, Airbus A320neo, and Boeing 787 aircraft. For now, however, our outlook for 2023 does not contemplate near-term growth in these programs. On the defense side, we have significant programs, including the Lockheed Martin F-35, the Korsky CH-53K helicopter, and the JASM missile. These programs have stable or growing production profiles for years to come. With the CH-53K set to enter full-rate production, that program is expected to remain our largest defense program and a rival elite program in size. Additionally, we've won several smaller aerospace programs with new OEM customers in both defense and commercial markets, programs that our customers do not want us to disclose. These new wins add to our longer-term portfolio for growth, further diversifying our customer base, and leveraging our composite materials expertise. Now, let me make a comment about our long-term strategy. Our strategy for long-term growth and competitive differentiation is based on two fundamentals. The first is that we're really good at developing advanced material solutions, and the second is that we do a great job for customers. These two things combined, material expertise and operational excellence, set us up to be the partner of choice for our customers. This gives us an advantage that our customers value, our product development, our ability to industrialize a process, our technical support, and our operational consistency to deliver the highest quality products on time and reliably. We sustain this growth in competitive differentiation because we continue to invest in our employees, the capital equipment, and the processes that we need to efficiently produce the advanced material products our customers value. Effective capital allocation remains a top priority with a focus on driving long-term organic growth. It starts with research and development for both product and process advancement. You will notice that throughout the pandemic, we invested nearly $40 million per year on average in research and development in our business. about 4% of net sales over the past three years. These are development efforts often in alignment with customer partnerships that specifically target product development and process improvement goals. These technological collaborations and material advancements are an essential investment in our future success in both machine clothing and engineered composites. Our capital expenditures are focused not only on maintaining our current capabilities, but on advancing our production efficiency and growing our capacity and capabilities as our business base grows. In December, we increased our regular dividend by 19 percent to 25 cents per quarter. During the past two years, our board of directors has authorized a share repurchase program, and we've executed just over $100 million of repurchases, retiring about 4 percent of our shares. Finally, we'll continue to evaluate targeted discipline acquisitions to supplement our long-term growth strategy. Historically, acquisitions have played an important role by enabling us to build on our technological leadership and strengthen global market positions with key customers in line with our strategic priorities. In summary, we ended the year 2022 in great shape. With a robust balance sheet, our employees are doing a great job for customers with a relentless focus on operational excellence and developing advanced materials in both segments. and we continue to invest in R&D to position Albany for long-term organic growth. We believe we're poised for another solid year of results in 2023. So with that, I'll hand it over to Stephen to provide more details on the quarter and our outlook for 2023. Stephen.