Albany International Corporation

Ladies and gentlemen, thank you for standing by. My name is Desiree and I will be your conference operator today. At this time, I would like to welcome everyone to fourth quarter 2024 Albany International Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. I would now like to turn the conference over to JC Chetnani, VPIR and Treasurer. You may begin.

Thank you, Desiree, and good morning, everyone. Welcome to Albany International's fourth quarter 2024 earnings 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 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 and contain a number of risks and uncertainties which could cause actual results to differ from those expressed or implied. For a full discussion of these risks and uncertainties, please refer to both our earnings release of February 26th 2025, as well as our SEC filings, including our 10-K. Now, I will turn the call over to Gunnar Cleveland, our President and CEO, who will provide opening remarks. Gunnar?

Thank you, JC. Good morning, and welcome, everyone. Thank you for joining our fourth quarter earnings call. I'll provide an overview of our business performance. Rob will later discuss our financial results in detail, and then the outlook for 2025. We continue to perform well in both our businesses, as evidenced by strong results at machine clothing and ongoing operational progress steered by new leadership at Engineer Composites. While we recognize additional EAC adjustments at AEC, the overall business fundamentals are strong and we expect higher revenues and improving profitability over the next several years. For the full year, we reported record revenues of nearly $1.25 billion, driven by organic growth at AEC and the Heimbach acquisition. With our focus on working capital and cash flow, we generated free cash flow of $59 million in the fourth quarter and $137 million for the full year, underlying the strength of the combined businesses. Our balance sheet continues to be in excellent shape, giving us the ability to execute our growth strategy. With the current and projected cash flow and strong balance sheet, we are able to return value to the shareholder as part of our capital allocation strategy. We have initiated our share repurchase program. In the fourth quarter of 2024, we repurchased $50 million of shares. The board has also authorized a new share repurchase program which supersedes our current program and is now up to $250 million. Turning to our businesses, machine floating revenues in the fourth quarter were slightly below same quarter last year due to a strong comparative period. Our focus in the second half of 2024 was to consolidate our operations and discontinue profitable product lines, primarily at the Heimbach business. This is part of the integration plan, and while it leads to lower top line growth, in the short term, it improves our bottom line performance. In terms of grades, Packaging and publication were down year-over-year in the fourth quarter, again driven by strong comparisons to the prior year, but the long-term trends remain positive, especially for packaging, our MC products' largest end market. Tissue and pulp remain stable, and we grew our sales in engineered fabrics, partially offset by publications. In terms of geographies, North America continues to be a strong contributor, while South America remains stable with slightly improving trends. Europe was generally flat year-over-year and will be looking for some growth into 2025. Asia was also generally flat year-over-year with slight weakness in China. Our global MC backlog is stable. There is some consolidation in our pay-per-customer base. and we're working with our customers through the transition as they move product to optimize their footprint. At Heimbach, our integration plan is on track. We have consolidated operations and streamlined our footprint. The business is a complement to the legacy Albany company in both geography and technology, and we continue to sell the product using the Heimbach brand. Our cross-functional integration process is progressing. and we have made considerable improvement in Heimbach's working capital levels, significantly contributing to our consolidated free cash flow results. Our exit run rate on synergies is strong, and we're on track to meet our financial goals. Overall, paper machine clothing delivers excellent financial results, and going forward, we forecast low single-digit revenue growth prospects. In our engineered composite segment, We recorded revenues of $99 million impacted by additional EAC adjustments in the fourth quarter and lower LEAP revenues. These EAC adjustments were driven by the CH53K and the Gulfstream programs. We continued to make progress on the CH53K program, but needed further adjustments to our EAC due to learning curve and material challenges. Our new leadership team in Salt Lake City is establishing robust processes and has invested in training and the front-line leadership, enabling growth and learning curve improvements. The CS52K is a large program, and our operating plan is aligned with our customer and their projected growth rate. This will be a significant and profitable program for us well into the middle of next decade. After a leap, CH53K will be our largest program in terms of revenue. For Gulfstream, we're also making progress on manufacturing the parts and have a reduced volume exposure coming into 2025. We're growing more confident about space as an additional source of long-term revenue. In a quarter, we signed an LTA with a customer and anticipate solid growth from this and other customers in the medium and long term. In 2025 and the next several years, we also project growth in advanced air mobility with both traditional composite structures as well as our proprietary 3D woven technology. On LEAP, we continue to monitor the situation at Boeing and are taking a conservative approach and projecting lower volumes both at LEAP and our other Boeing programs. As a result, we're projecting LEAP revenues of approximately $150 million for 2025. We remain ready with ample capacity to ramp up our production quickly as demand recovers. We work closely with Safran and monitor Airbus and Boeing recovery and are encouraged by some of the news from both Boeing and Airbus. Our defense business is positioned to grow with JASM and LORASM generally stable and with significant growth potential in the medium term. Hypersonics is developing with multiple opportunities, and we have invested internal funds supplemented by customer funding in this technology. With our near net shape part approach and investment in capability and capacity, hypersonic parts will be a significant growth engine in the medium and long term. During the quarter, we were awarded long-term contracts for both existing and new customers of $138 million. As these awards translate into purchase orders, they will be added to our existing AEC backlog, which at year end was 1.4 billion. This is backlog that does not include LEAP volumes beyond the current year and only relates to our other AEC platforms. This does provide us visibility and confidence into our business opportunities and performance beyond 2025. Overall, 2024 was a year of integration and optimization at Machine Clothing, while at AEC we did a reset and took several actions to stabilize and improve operations to enable future growth and improving profitability. With all the opportunities for growth at AEC, this is a necessary and critical action that will pay major dividends for our growth ahead. We exited 2024 with one of our best years on record for cash generation, with a stronger operational structure and have returned cash to shareholders through our share repurchase program and dividends. In 2025, we will strengthen our foundation to deliver future growth. Material science is the foundation of our businesses, and our ability to continuously develop around our materials and weaving technologies give us an enviable position in our markets. We will continue to focus on cash, capital deployment, and strong business performance. At MC, the integration of Heimbach remains center stage. We recently announced that we are consolidating two facilities and we are also divesting a non-core business in Italy. At AEC, the team is taking major steps to improve the operations as well as adding additional top talent in operations, planning, and supply chain management, enabling improvements in systems, processes, and workforce. All this realignment and effort sets us up for much healthier and successful next growth spurt. As we grow and strengthen the business, this year we will also consolidate all headquarter employees in the new office in Portsmouth, New Hampshire to get the benefit of having the team together as well as improved access to talent for key corporate roles. We will be moving mid-year 2025 and we'll close down our Albany, New York office while making the current Rochester office available to AEC. The transition will take approximately one year. Additionally, we're overhauling our executive compensation program. Last year, we included cash performance in the short-term incentive compensation. For 2025, we will change the long-term incentive compensation from 100% EBITDA to one-third total shareholder return, one-third return on invested capital, and one-third EBITDA. We believe these actions will further align incentive compensation with long-term value creation. Looking forward, we are in excellent financial position with strong cash flow and a supportive balance sheet to drive shareholder value and achieve our long-term objectives. While discrete items have impacted our short-term run rate and outlook, we have completed the vast majority of the hard work to address the issues. Our Heimbach integration is well underway with key actions announced, and we have rebalanced our program outlook at AEC to better reflect our current conditions. These actions, combined with enhancements we have made to our leadership team over the past 12 months, position us to focus on our long-term plan. In the coming months, we will share more details with specific targets, but we're focused on these three primary goals. First, with much of the integration activities behind us, we're focused on growth in the machine clothing segment over the next five years. We believe there's opportunity for growth with our technology, product, and manufacturing leadership. Second, We are fortunate to have won a wide range of programs at AEC across structures, engine, and with our proprietary material science advantage. Taken together with the refinements we have made to key programs in 2024, this positions us for robust segment growth on the top line with compelling contribution margins over the long term. And third, through a disciplined capital allocation program, we can enhance our overall growth rate through additional R&D investments. and inorganic initiatives. We have $1 billion in dry powder, and we'll take advantage of both organic and inorganic opportunities. I would also like to take this opportunity to thank our investors for the support through 2024, as well as our employees for their hard work and dedication. With that, I'll now hand it over to Rob to provide more details on the quarter. Rob?