Albany International Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Albany International first quarter 2023 earnings conference call. At this time, your telephone lines are in a listen-only mode. Later, there will be an opportunity for questions and answers with instructions given at that time. If you should require assistance during the conference call, please press star, then zero, and an AT&T specialist will assist you offline. As a reminder, your call today is being recorded. I'll now turn the conference call over to your host, John Hobbs, Director, Investor Relations. Go ahead, sir.

Thank you, Alan, and good morning, everyone. Welcome to Albany International's first quarter 2023 conference call. As a reminder for those listening on the call, please refer to our press release issued last night 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 and uncertainties, which could cause actual results to differ from those expected or implied. For a full discussion of these risks and uncertainties, including our reconciliation to non-GAAP measures, we may use in this call to their most comparable gap measures, please refer to both the earnings release of April 25th, 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, who will provide opening remarks. Bill?

Thank you, John. Good morning and welcome, everyone. Thank you for joining our first quarter earnings call. We're pleased to report another strong quarter, and we're off to a good start this year. Both business segments executed well in line with our plan. Total company sales grew more than 10% relative to our first quarter of last year, driven by strong organic growth from engineered composites. Gross margins were nearly 37%, and adjusted EBITDA margins were 22%. At the segment level, machine clothing's first quarter sales were effectively unchanged year over year. Machine clothing segment delivered excellent profitability again, with gross margins over 50%. and adjusted EBITDA margins exceeding 36%. To put this in historical context, those margins are in line with our five-year averages. Our machine clothing operating teams continue to execute well and deliver these attractive levels of profitability despite inflation and lingering supply chain challenges. The engineered composite segment achieved top-line growth of approximately $26 million in the first quarter, up nearly 30% compared to Q1 of 2022. The growth is primarily driven by the Sikorsky CH53K helicopter program, the LEAP program, in addition to contributions from smaller programs. Adjusted EBITDA in this segment was $21 million, up about $7 million from 2022's first quarter result. In the past, I've discussed our strategic goal is to become the partner of choice for our customers in both of our business segments. In machine clothing, we're the leader in the paper machine clothing space, and it's our job to remain firmly positioned as the partner of choice. Our strategy is to invest in the next generation of products, our production processes, and our technical sales and service teams. This is foundational to our well-earned reputation for superior product performance, reliability, quality, and customer service. In AEC, we're continuing to build our brand. Our on-time delivery and our product quality are becoming recognized as world-class. This customer recognition of Albany as a high-performance supplier, coupled with our composite material expertise, has been key to securing more business with existing customers, such as the CH53K app transition program, Sikorsky, and new business with certain new customers. Building on our growing reputation, our commercialization team has significantly increased our bid and proposal pipeline. Our engineering and operations teams are working hard to convert the most attractive of these opportunities to organic growth for our business. This pipeline of opportunities enhances our confidence that our organic growth strategy for the next few years is on track. As we discussed on our last call, our 2023 CAPEX program consists of investments driven by organic growth in AEC. In addition, as part of our continued operational excellence, we're making a significant investment in production capabilities to drive productivity gains within AEC NMC as well. Turning to business development, we recently announced the contract award from the US Army in support of hypersonic development activities. This award is a visible indication of the potential of our proprietary 3D composite technology and what it could play in the demanding hypersonic environment. AEC will be utilizing its near net shape 3D technology to develop a carbon-carbon structural solution for thermal protection systems that have significant benefit in high temperature hypersonic applications. When compared to competing technologies, ADC's 3D solution provides unique thermal and structural performance advantages with superior affordability and scalability. So we're off to a good start to the year. Our operations are performing well, and we're executing on our long-term strategy. Before moving on to the financial review, I wanted to take a moment To thank Stephen Nolan for his contributions to the success of Albany International, extend our best wishes for his continued success at his new company. Now I'd like to formally welcome Rob Starr, who recently joined Albany as our Chief Financial Officer. Rob comes to Albany as a seasoned CFO with both public and private company experience. He knows the industries we serve and his depth of experience will be instrumental in leading our finance organization. And we're grateful to have him on board. While many of you likely know Rob from his prior roles, we look forward to introducing him to the investment community in coming weeks. Now, with that, I'll hand the call over to Rob, and I'll be back to wrap up.