Albany International Corporation

Good morning and welcome to the Albany International second quarter 2025 earnings call. I am Franz and I'll be the operator assisting you today. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to J.C. Chetnani, interim CFO and vice president of investor relations and treasurer. Please go ahead.

Thank you, Franz and good morning everyone. Welcome to Albany International second quarter 2025 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 the 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 on July 30th, 2025, as well as our SEC filings, including our second quarter form 10Q and our 2024 form 10K. Now I will turn the call over to Gunnar Cleveland, our president and CEO, who will provide opening remarks. Gunnar. Good morning and

thank you for joining us as we review our second quarter 2025 results. Overall, I'm encouraged with our progress this year, a year that we have said would be a transition year. Our business segment leaders are performing well as they restructure, invest and strengthen their operations, all while remaining agile in addressing near terms challenges. Our second quarter financial results lagged our expectations, but as I'll cover, the performance was largely impacted by certain timing and operational issues, and we're confident in our recovery. We continue to monitor the tariff situation and secondary effects that could impact regional market dynamics or customer behaviors. To date, we've not realized any direct material headwinds. Our mostly regional setup for both suppliers and customers largely insulate our operations from direct impact of tariffs. Also, while we were cautious about the tariff impact in our outlook, we now expect global growth to continue as the tariff environments get more predictable. Increasing activity in the defense sector, particularly hypersonics and new programs, is expected to the result in accelerated growth at AEC in addition to our growth in commercial aerospace over the next several years. In machine clothing, despite some second quarter timing and market headwinds, the business delivered expected returns on the lower volume and showed growth from the first quarter. We've commenced two additional facility closures in the quarter, as we remain focused on optimizing our global production footprint to best serve our customers. AEC delivers strong sequential quarter growth and continues to accelerate its disciplined long-term operational strategy. We're investing in operational excellence to transform how we execute our current portfolio programs, allowing us to grow profitably with our continuing new business wins. We're making good progress, driving process improvements across all of our sites and with emphasis on our CH53K program. At our last visit to Salt Lake City, it was encouraging to see planning and supply chain align with the rapid growth of this program. The EAC adjustment in the quarter reflects our investment in program ramp readiness that we will cover in more detail later. For the quarter, we reported revenues of $311 million, an overall adjusted EBITDA margin of 16.7%, and an adjusted diluted EPS of 57 cents. We returned capital to our shareholders through both a regular quarterly dividend and share repurchase program. In the first half of the year, we repurchased 190 million worth of shares, including 50 million in the second quarter. We currently have 143 million of capacity remaining under our latest share repurchase authorization. Turning to our individual businesses, for the quarter, machine clothing reported revenues of 181 million and an adjusted EBITDA margin of 28.8%. As a reminder, comparisons to prior year are impacted by certain intentional and strategic business exits of approximately five million per quarter. In terms of grades, while longer term secular trends in packaging remain strong, the effect of customer consolidations in North America created a delivery headwind in second quarter compared to the prior year. Tissue remains a bright spot globally with expected new machine investments, while pulp and engineered fabrics remain stable. North America had a slight decline in deliveries in the second quarter, mainly due to packaging machine production curtailments. We're working closely with our customers to solidify our positions where consolidations have impacted their capacity. Overall, Europe continues to show solid signs of recovery with good deliveries and orders, offsetting weakening conditions in Asia. In particular, in China, we're seeing softer demand and continue to await machine restarts from the legacy Heimbach customer that we discussed in the prior quarter. Overall, we continue to follow a disciplined sales approach to mitigate these market dynamics. Our global MC order backlog remains healthy and gives us confidence for a stronger second half of the year. Operationally, we initiated the process to shut two additional facilities in the quarter, St. Junion, France, and Manchester, UK. While we're executing to plan, the transfer of production and equipment across facilities does challenge how quickly we can ramp up at the new location. In the second quarter, the performance at our Durant facility lagged as it took on new production, resulting in some temporary sales and profit shortfalls. During the second quarter, we also experienced temporary operational disruption in one of our US facilities due to unplanned equipment downtime, which led to delayed shipments in the quarter. Turning to engineered composite segment, revenues for the quarter were 130 million with an adjusted EBITDA margin of 8.5%. Revenue grew sequentially by 14% from the first quarter, reflecting continued ramping on our key programs. But profitability remains lower than our expectation as we continued our investment in disciplined operational improvements. We recorded a total EAC adjustment of 7.2 million for the quarter. The EAC is mainly driven by continued investment in our labor force, which led to higher than projected overhead rates. We're seeing the progress from our investment in frontline leader coaching and operator training through improved output and reduced scrap and rework. Our planning and supply chain improvements are evident in material being available for assembly needs on the CH53K program. On leap, we're at the contractual inventory levels and well aligned to meet the France production schedule as Boeing and Airbus single aisle, delivery rates continue to recover. We have ample capacity to meet any upside to the demand and now expect growth in the second half. The emerging advanced air mobility market remains attractive for our business. With continued sequential quarter growth and expected strong demand through the course of 2025, with our key customer beta, advanced air mobility will be a significant source of growth for AEC. As previously highlighted, our new long-term agreement on the Bell 525 program is an attractive new win, where we are already delivering to customer expectations. We have invested in additional equipment in preparation for the Jazzon program growth, where we also deliver at 100% on time. Having achieved critical milestone at our dedicated facility, we're seeing momentum with customers in hypersonic parts development. We continue to invest in our capabilities and remain very positive in the medium and long-term attractiveness of this segment. Also, as I highlighted in our last quarter earnings release, our application development team continues to evaluate where AEC differentiated 3D woven technology in composite parts can be superior alternative to titanium with stronger relative strength to weight benefits. This was highlighted at the Paris Air Show, where our display showed examples of parts that we are currently supplying or in the process of developing for various customers. The response at the show was positive with customers and others seeing our keen focus on the technology that grew out of our weaving expertise and this technology's growing strategic uses and value. As we presented in last quarter's call, our solution can be delivered at a fraction of the titanium lead time with domestic materials and a production capacity proven to deliver 100% on time, which is in stark contracts to the challenges in the titanium supply. We successfully completed our S4HANA upgrade across the entire company in May. This investment improves our systems and operational efficiencies and will deliver enhanced analytics to improve our business agility. Finally, I'm excited to announce that Will Station has accepted the role of CFO at Albany International. Will comes to us from McKesson Medical Surgical, where he was Senior Vice President of Primary Care Sales, leading a team of more than 1200 account executives. Prior to that, he was the subsidiary's Chief Financial Officer and Senior Vice President of Finance. Will's career also includes 16 years at the Boeing Company from 2005 until 2021, where he held a number of increasingly Senior Finance roles, notably Vice President and Chief Financial Officer for the Commercial Derivatives Airplanes from 2014 to 2021 and Director of Financial Operations for Boeing Commercial Airplanes from 2011 to 2014. He's a great addition to the team and complements the leadership team with large OEM experience, as well as his commercial finance and business expertise. I also want to take this opportunity to thank JC for stepping up to take on the role as interim CFO and making the transition seamless. JC will continue to support the transition as Will on boards. And with that, I'll now hand it over to JC to provide more detail on the quarter. JC?