ALBANY INTERNATIONAL CORP /DE/ Q3 FY2025 earnings call

• On October 28, announced strategic review of structures assembly business in Salt Lake City, including potential sale of site, as it doesn't align with strategic priority on 3D woven technology and engineered components.
• Took loss reserve and program adjustment of $147 million over 8 years for CH-53K program, recognizing no path to profitability without contract change.
• Reached definitive agreement with Gulfstream to complete current contract by end of 2025, working to deliver remaining components by year-end.
• Machine Clothing business is global leader in paper machine clothing and process belts, with strong EBITDA margins >30% and exceptional cash generation.
• Engineered Composite business has 12% organic revenue CAGR over past decade, growing as adoption of proprietary technology accelerates, including joint venture with Safran for 3D woven technology in engines.

Machine Clothing: Revenue was $175 million, a 4% decline from the prior year, reflecting softer demand in Asia and strategic business exits in Europe, while other regions remained stable. Adjusted EBITDA was 31% compared to 33.2% last year as lower volumes in Asia were partially offset by ongoing benefits from footprint optimization. Engineered Composites: Revenue was $86.5 million compared to $115.4 million last year. The decline was driven entirely by the CH-53K charge. Excluding this impact, the revenue was $132.5 million, up from $128.7 million in the prior year, supported by higher LEAP program volumes. Adjusted EBITDA margin was 9.6% compared to 10.3% a year ago.

• Withdrew full year 2025 guidance due to uncertainty from strategic review process.
• Intend to reinforce full year guidance when reporting fourth quarter results, including 2026 outlook and update on strategic review.
• Qualitative assumptions: Underlying trends from third quarter expected to persist into fourth quarter; Machine Clothing to see stable Americas, moderate Europe recovery, continued weakness in China; Engineered Composites to have performance similar to third quarter supported by higher LEAP production volumes but weighed by lower margin structural work.

• Uncertainty regarding the outcome of the strategic review of the structures assembly business, including potential sale of the site.
• Adverse impact of the CH-53K program loss reserve and program adjustments on financial results.

Q: Could you take us through how you evaluated the ability to move on from the CH-53K program?

A: Last fall, needed to upgrade leadership and planning for CH-53K. By summer, saw no way to make it profitable as bid, so decided to take the charge and strategic look including selling the site.

Q: Does anything change for the prior 2026 targets after the strategic review outside of the CH-53K?

A: We are a more focused company around our technology, programs are solid good return programs, and we've set up guardrails for new programs.

Q: Looking at Machine Clothing, how to think about the trajectory for that business margin-wise going forward?

A: Impact from Asia, also exited unprofitable businesses. Continuing to rationalize footprint to improve cost position and margins, expecting improvement as Asia market corrects.