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Operator: Thank you for standing by. My name is Pam [ph] and I will be your conference operator today. At this time, I would like to welcome everyone to the Albany International First Quarter 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to J.C. Chetnani, VP, Investor Relations and Treasurer. You may begin.

J.C. Chetnani: Thank you, Pam and good morning everyone. Welcome to Albany International’s first 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 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 April 30, 2025, as well as our SEC filings, including our first quarter Form 10-Q and our 2024 Form 10-K. Now I will turn the call over to Gunnar Kleveland, our President and CEO, who will provide opening remarks. Gunnar?

Gunnar Kleveland: Thank you, J.C. and thank you for joining us as we review our first quarter 2025 results. Overall, I’m pleased to report that our businesses are executing to the plan that we laid out at the start of this transition year. Our new business segment leaders are performing well, as they restructure and strengthen their respective operations. While we see uncertainty in the markets, we were not affected by tariffs or other disruptions in the first quarter. Due to our mostly regional setup for both suppliers and customers, the overall direct impact of tariffs as they currently stand is not expected to materially impact our financial or operational performance. Machine Clothing continues to deliver consistent strong results and the integration of Heimbach is proceeding to plan.

We expect to see the benefits of the Heimbach integration efforts accelerate into the second half of this year as our actions take effect. AEC is executing well on its current portfolio programs and the segment continues to win new business. The team is making progress on process improvements on our CH-53K and Gulfstream programs and we had lower EAC adjustments in the quarter which we will discuss in more detail later. For the quarter, we reported revenues of $289 million and overall adjusted EBITDA margin of 19.3% and an adjusted diluted EPS of $0.73. Free cash flow was ahead of plan and we expect 2025 to be another strong free cash flow year. We returned capital to our shareholders with both a regular quarterly dividend and our reinitiated share repurchase program.

In the first quarter, we repurchased $69 million worth of shares. We currently have $193 million of capacity remaining under our latest share repurchase authorization of $250 million. Turning to our individual businesses. For the quarter, Machine Clothing reported revenues of $175 million and an adjusted EBITDA margin of 28.4%. In terms of grades, secular trends in packaging remained strong. Tissue, pulp and engineered fabrics remained stable. North America had a slight decline in deliveries in the first quarter but strong order flow shows strength in the market. Europe is showing signs of recovery with good deliveries and strong orders making us cautiously optimistic for the region. Finally, Asia is mixed with some weakness in China. Our global MC order backlog is strong with order-to-sales ratio above 1, giving us confidence in our outlook for the year.

At Heimbach, we continue to make good progress on our integration plans which is focused on footprint rationalization and operational efficiency. As a reminder, since the acquisition, we have closed 2 Albany facilities, sold 1 Heimbach business and closed 2 Heimbach facilities. We have also restructured operations at the remaining Heimbach facilities in Durham, Manchester, Burgos and [Indiscernible]. These consolidation activities are strengthening our operational and production efficiencies and enhancing the regionalization of our business. The synergy benefits of these actions accrue over time. We expect the run rate on our synergies to be particularly strong as we exit 2025 and we remain confident of hitting our original synergy targets with a 3.5 to 4x effective purchase multiple.

Turning to tariffs; we’re monitoring and assessing the fluctuation in the tariff landscape as they occur. Our current view is based on tariffs as they currently stand. The situation is dynamic and our teams are vigilantly addressing both challenges and opportunities and we continue to adapt as the situation develops. As it relates specifically to our MC business, it should be noted that most of our sales and sourcing is regional and therefore, generally insulated from tariffs. For example, in North America, the transaction among our facilities in Mexico, U.S. and Canada are covered by the USMCA. With the acquisition of Heimbach, our EMEA sales and supply chain is strengthened regionally by local trade treaties. Finally, in Asia, we’re also supplying our customers from within the region.

However, we have some potential exposure to sole-source supplied materials and certain highly engineered products manufactured by us only in the U.S. or the U.K. To mitigate any impact, we are assessing and using trade mechanisms, looking at cost controls as well as considering other actions. Turning to our Engineered Composites segment. Revenues for the quarter were $114 million with an adjusted EBITDA margin of 13.5%. We keep making progress in our AEC operations and we recorded a total EAC adjustments of $7 million for the quarter. Half of this is driven by CH-53K and Gulfstream with the balance across a mix of programs. The frontline leader coaching, operator training and progress in planning and supply chain are driving the expected improvements as well as setting the sites up for the future growth.

On LEAP, as you may recall, last quarter, we took a conservative approach as we projected lower volumes, both at LEAP as well as our other Boeing programs. The drop in revenue in the first quarter is in line with our forecast. We stand ready to meet Safran production schedule as the demand at Boeing and Airbus recovers and have ample capacity to meet any upside to the demand. With respect to our other programs, we’re seeing growth in advanced air mobility with expected ramp to build through the course of 2025. On new program wins, we recently announced a long-term agreement with Bell on the 525 program. For JASSM, we added to our current backlog and are working on a new multiyear contract. As these awards translate into purchase orders, they will be added to our existing AEC backlog which at quarter end was $1.3 billion.

As a reminder, this is backlog that does not include LEAP volumes beyond the current calendar year and only relates to our other AEC platforms. This backlog provides us with visibility and confidence into our business performance in 2025 and beyond. Finally, as it relates to tariffs for AEC, our sourcing and production in Mexico, Canada and U.S.A. is again currently protected under the USMCA. The direct impact of our earnings from tariffs at AEC is currently expected to be negligible. We’re tracking how second order tariff impacts play out, particularly from suppliers as they may be impacted in their own value chain. Similarly, we are monitoring the impact of demand at our end customers. At this point, we are not aware of any changes from our customers or suppliers.

If we begin to see impacts, we have assessed and prepared mitigating actions and we will address these challenges as needed. In the current macro and geopolitical environment, we believe the ongoing titanium shortages and extended lead times will continue. This creates even more opportunity for our Engineered Materials, especially in 3D woven composite parts which can be a superior alternative to titanium in terms of strength, weight and cost. As our product offering gains more acceptance among our customers, our competitive advantage will be a catalyst for additional long-term growth. We have proven our industrialization of this technology with the LEAP fan blade and case, 777-9X fan case as well as parts for landing gears. Our solution can be delivered at a fraction of the lead time with readily available materials and the production capacity proven to deliver 100% on time which is in stark contrast to the current and historical titanium supply issues.

Finally, we continue to streamline our operations and are upgrading our SAP system with S/4HANA across the entire company with a go-live scheduled for next week. This will improve our systems and operational efficiencies and deliver enhanced analytics to improve our business agility. With that, I will now hand it over to Rob to provide more details on the quarter. Rob?

Robert Starr: Good morning, everyone. I will review our first quarter results and then provide our outlook for 2025. As a reminder, please note that starting last year, we allocated our GIS costs to our operating segments to better reflect their true underlying performance. Consolidated net sales were in line with our plan at $289 million, down 7.8% from $313 million in the first quarter of last year. Machine Clothing net sales of $175 million decreased 5.7% versus the first quarter of the prior year due to targeted product line divestitures and lower sales to a large Heimbach customer. AEC net sales of $114 million were lower by 11% versus the first quarter of 2024, primarily due to a $7 million negative top line impact from the EAC adjustments during the quarter.

This was coupled with lower lead sales as was expected. We were able to partially offset the sales decline with growth in our advanced air mobility and CH-53K platforms. Consolidated gross profit was $96 million or 33.4% of sales, down from $109 million in the prior year or 34.7% of sales. Machine Clothing gross profit of $80 million decreased from $85 million in the prior year, while gross margin percentages remained constant at 45.7%. This performance reflects improved operating efficiencies as we continue with our integration efforts. AEC gross profit of $17 million decreased from $24 million, largely reflecting the impact of the cumulative EAC adjustment for the quarter. Of the $7 million of EAC charges for the quarter, $2 million related to the CH-53K program, $1.7 million related to Gulfstream with the balance spread across multiple other programs.

Net R&D expense at 4% of revenue remained relatively flat in the first quarter versus the prior year. Our consistent investment in R&D underscores our strategy of using material science as a competitive advantage. Consolidated SG&A expenses were $54 million for the quarter, down slightly versus the $55 million in the prior year. The effective tax rate for the quarter was 26.6% versus 29.2% in the prior year. The lower rate is mainly due to favorable discrete tax adjustments, primarily related to a decrease in our valuation allowance on foreign tax credits. GAAP net income attributable to the company for the quarter was $17 million compared to $27 million last year. GAAP diluted EPS was $0.56 per share in the quarter versus $0.87 in the same period last year.

After adjustments primarily relating to FX revaluation and restructuring costs as detailed in our non-GAAP reconciliation, the adjusted diluted EPS was $0.73 versus $0.90 in the same period last year. Consolidated adjusted EBITDA was $56 million for the first quarter versus $65 million in the prior year period. Machine Clothing adjusted EBITDA was $50 million versus $52 million in the prior year. Adjusted EBITDA margin was up slightly to 28.4% versus 28.2% in the prior year, reflecting improved operational efficiencies. AEC adjusted EBITDA was $15 million as compared to $21 million in the prior year period, largely reflecting the effect of the EAC adjustments. Adjusted EBITDA margin at AEC was 13.5% of sales versus 16.6% in the prior year, once again reflecting the current period EAC cumulative catch-up adjustments as well as the effect of EAC charges which were recorded in the second half of last year.

During the quarter, free cash flow was negative $13 million versus a negative $17 million in the prior year. We remain on track to deliver another strong cash flow performance this year. Our balance sheet remains strong with a cash balance of over $119 million and $384 million of borrowing capacity under our committed credit facility. Based on our analysis of tariff impacts and given our first quarter’s performance which was in line with our plan, we are reaffirming our full year guide. In terms of earnings cadence, we still expect the second half to be stronger than the first half due to the ramp at AEC, combined with the acceleration of Heimbach synergies. Now, I’d like to open the call for questions. Operator?

Operator: [Operator Instructions] And your first question comes from the line of Peter Arment with Baird.

Peter Arment: Gunnar, you talked about kind of the ability to kind of step up for to meet Safran’s schedule if rates increase. Can you just kind of remind us — I know that there was probably some inventory that they were burning through but where things stand regarding LEAP and kind of how things are progressing there?

Gunnar Kleveland: Right now, there is some use of inventory. We expect to be — and as I’ve mentioned before, we have a requirement to sit on certain inventory for Safran. So as we get through this first half of the year, we expect to be at that level. And we are monitoring how they’re pulling. We’re continuing to meet with them regularly. So I would say there is upside to the back half of the year, the way it is looking right now. But as of now, we’re staying with the plan.

Peter Arment: Got it. And then just you mentioned the other programs, the $1.3 billion backlog that talks to the rest of the programs and mix. Just wondering you’re seeing about new opportunities in terms of I know there’s probably a lot you can’t talk about in terms of the classified world, whether it’s hypersonics or other things but there is a lot of funding dollars coming through the supplemental and other areas. Are you seeing new opportunities to grow that backlog?

Gunnar Kleveland: I definitely am seeing opportunities and we have the benefit actually now picking and choosing a little bit what we want to go after. Our focus is on our technology, whether it’s 3D woven, braiding or other capacities that we have and where we have — have a competitive advantage. But there’s definitely opportunity out there. I would say the opportunity is in space and in some of the missile programs, as well as we ramp up now across both Boeing and Airbus engines is a priority.

Peter Arment: Okay. That’s helpful. And just lastly, just maybe on less — lower EACs this quarter. Maybe just CH-53K is such a huge program for you guys. Maybe just give a little more color on how that program is going.

Gunnar Kleveland: Our plan is working, Peter. The team is progressing. We have the right people in place. We still have to hire more people which always introduce some risk. But I would say we are better at onboarding. We’re better at training and we have better frontline leadership people. And so I’m optimistic about continued improvement on the CH-53K. We also closed out several programs in the first quarter which is — which was part of the EAC adjustment. So as new programs are coming on, we’re well situated, well prepared. So very positive.

Operator: Your next question comes from Michael Ciarmoli with Truist Securities.

Michael Ciarmoli: Maybe Gunnar or Rob, just to stay with Peter’s last — or the last line of questioning there on new programs. Can you give us more color on this 7-year contract with Bell? And I mean, I guess, just thinking of it specifically from a risk or margin profile, we’ve kind of all been conditioned, I think, to think that structures are challenging business. How do we get comfortable with what you’re potentially going to be working on and delivering there?

Gunnar Kleveland: Yes. So I’m very excited that we do have a contract with Bell now. We’ve been working with them. It’s a situation where one of their suppliers failed which is we have seen before. And we took on some rather complex parts from — on the 525, tail boom specific. So I would say it’s an opportunity for us to show our capability. Those parts are in our Boerne facility right now and we’re delivering and supporting Bell as they’re ramping up on the 525. I think — I believe in the 525 program. I think it’s a good program going forward. And we’re — but it’s really a catalyst to get us in with Bell and show our capabilities and see what else we can do for them. As far as returns since we do have a choice of the work that is coming towards us, we are being picky about the work that we’re taking and we’re getting the returns that we have projected in the high teens for AEC.

Michael Ciarmoli: Okay. Just — yes, I guess the last time we saw, you just said you took over from a challenged supplier. I guess that was the Gulfstream and that proved to be a little bit risky. Okay, I guess just sticking with AEC and kind of trying to dig a little deeper. What was — what were LEAP revenues? Or what was the growth year-over-year? And I mean, so you’ve got GE and Safran talking about a 15% to 20% increase this year but it sounds like there will be continued destock as they manage that inventory. I mean, have you changed your view at all from being down slightly for the year? Or how should we think about LEAP.

Gunnar Kleveland: Let me address the supplier first with Bell. They chose to get out of the business. So that’s why Bell was in trouble. These are much simpler composite parts than what we have with Gulfstream. So we’ve already made delivery of all the parts. So I’m not worried there. But they are complex parts because we are good at complex parts. As far as LEAP is concerned, right now, we’re keeping the plan for the year. But as I mentioned to Peter earlier, I think there’s upside for the year. It’s very positive to see where Boeing is at their ramp-up on 737 and with Airbus. So as the year progresses, we will incrementally grow our output with the demand.

Michael Ciarmoli: Okay. Do you have the LEAP revenue number for the quarter?

Robert Starr: Yes. We haven’t disclosed that specifically but Michael, if you look in the Q, there was a reference to the percentage of revenue. So I’m not — but I mean, I would expect Q1 to be pretty much the low point for the year just based on the full year projection.

Michael Ciarmoli: Okay. Got it. And then just last one for me and I’ll get out of the way. Just shifting to MC. I guess Heimbach coming on a couple of years and I think the original plan was to take EBITDA from kind of that $15 million to $16 million, maybe triple it. The margins down in MC this year. Is that still the trajectory for the overall integration you’re working on? Should we be thinking about kind of those Heimbach EBITDA margins getting to that $45 million plus rate?

Gunnar Kleveland: I think what you should expect on Heimbach or what you see right now is an effect of all of the actions that we’re taking. And I did repeat that just to remind us and everybody that we’re taking significant actions to densify our operations and make our efficiencies better. And as we’re doing that, there are some challenges with all the moving parts. And so you’re not seeing it right now but you’ll see that accelerate — you’ll see it accelerate through the year. And so yes, we’re confident that we will continue to see that growth.

Operator: Your next question comes from Jordan Lyonnais with Bank of America.

Jordan Lyonnais: Could you guys talk about how you’re looking at the ramp for 78 [ph], and then 777-X [ph] going into the rest of the year?

Gunnar Kleveland: So 787, we believe to be just growing very, very slowly through the year and then accelerating next year. So we have a relatively, I would say, cautious outlook for 787 for this year but better next year. 777, it’s all about the certification and we’re building parts to support that certification.

Jordan Lyonnais: Cool. And then on the tariff impacts, for the direct one, I know you guys said you were mitigated. Where are you guys looking at the second derivative impacts?

Gunnar Kleveland: Yes. We’re listening to the International Paper. We’re looking at listening to whether it’s GE or Safran or Boeing. We’re going to have to monitor that and also see what happens with the tariff landscape as it seems to change every week. So right now, it is looking relatively flat for us.

Operator: Your next question comes from Steve Tusa with JPMorgan.

Chigusa Katoku: This is Chigusa Katoku, on for Steve. So I guess I’m going to ask on the MC side. I think the organic growth was maybe worse than expected and you kept the full year guidance change. So it embeds like an acceleration through the year on tougher comps in an uncertain macro. But what just gives you confidence on this? And just any color on what you’re seeing in the macro?

Gunnar Kleveland: Yes. Chigusa, I have to also remind you that it is down because of divestitures, both of a company that we — Arcari [ph] that we sold in Italy as well as some lines that we stopped because of poor economics, just simple as that. We’re a little below organically in the first quarter but our backlog and our orders are very strong. So with the current outlook, second and third quarter is looking healthy.

Chigusa Katoku: Okay, great. And then, did you see any signs of pull forward orders during the quarter or is it hard to tell?

Gunnar Kleveland: No, we have seen no pulled orders — pulled forward or pulled?. Either, we haven’t seen any of that. Now I mentioned that we do make some MC product here in the U.S. that goes to the whole world. So we’re monitoring that. The volume is relatively low outside U.S. and Europe.

Operator: There are no more questions. I will now turn the conference back over to Gunnar Kleveland for closing remarks.

Gunnar Kleveland: Okay. Thank you everyone for joining us on the call today. We appreciate your continued interest in Albany International. Thank you and have a good day.

Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.