Albany International Corp Class A 2026 Q3 Earnings Call

Karen, please go ahead. Welcome to Albany International's third quarter 2026 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. Additionally, our remarks today may reference our earnings presentation, which is available on the investor relations section of our website, albint.com. 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 October 28, 2026, as well as our SEC filings, including our 10-Q and our 10-K. Now, I will turn the call over to Gunnar Kleveland, our President and CEO, who will provide opening remarks.

Gunnar? Thank you, Karen. Good morning, everyone, and thank you for joining our third quarterly earnings call.

The past three months have been pivotal in our evolution into a more focused and disciplined company, built around our proprietary 3D weaving and material science capabilities and the differentiated value they create across the diverse set of end markets we serve. As we previously disclosed, we completed our strategic review during the quarter. Through that process, we addressed the most significant legacy issue in our portfolio and reached an agreement with Sikorsky that improves the economics of the CH-53K program and provides a more stable foundation for the Salt Lake City manufacturing site and our business going forward. I'm incredibly proud of the team at our Salt Lake City facility and the broader Engineered Composites organization.

Through a period of uncertainty for the team, they stayed focused on what Albany does best, delivering high-quality products, supporting our customers, and executing with discipline. Our improved performance at the Amelia Earhart Drive facility and the engagement and relationship with Sikorsky were essential to this successful conclusion. We are very pleased to have put this behind us. Since concluding the review, our focus is shifting decisively from addressing legacy challenges to building for growth. We're seeing stronger execution, improved program visibility, and a growing pipeline of opportunities across commercial aerospace, defense, missiles, hypersonics, and next-generation aircraft applications. We're also continuing to engage with customers and government partners, evidenced by new wins in the quarter, as well as the Industrial Base Analysis and Sustainment, or IBAS, award of $21.2 million to complement our investments in ceramic matrix composites.

We will now have a fully vertically integrated facility that can serve all high-temperature needs faster and at a lower cost than our competition. This is exemplified through the teaming agreement with Lockheed Martin on hypersonic missile development. At the same time, Machine Clothing continues to focus on its market and product leadership positions, emerging from the past several years of integration activities with a more optimized and resilient global business. Our integration and footprint actions position the segment to generate strong cash flow while supporting customers across paper, tissue, packaging, and other industrial applications. Taken together, we're entering this next phase as a stronger company with an optimized portfolio, reduced risk profile, and a sharper focus on the areas where our core capabilities create long-term customer value.

Turning to results for the quarter, we generated consolidated revenue up 34% to $349.5 million, a record high quarterly revenue for the company. These strong sales were primarily driven by continued strength in Engineered Composites and production rate increases across several key aerospace and defense programs, plus a benefit of approximately $12 million related to the renegotiated CH-53K contract. We also delivered adjusted EBITDA of $100.1 million and adjusted diluted EPS of $1.68, above the high end of the revised outlook range we provided at the conclusion of the strategic review. Our major programs are continuing to ramp, our execution continues to improve, the portfolio contains materially less program risk, and we're winning new business. This is translating to stronger, healthier, and more reliable growth. Next, I'd like to discuss our results by segment, beginning with Machine Clothing.

Machine Clothing revenue was $169.8 million, modestly below the prior year due to anticipated weakness in the Americas during the quarter related to customer consolidations. By region, China remains stable for the fourth consecutive quarter, although visibility remains limited. In the Americas, end market conditions and order rates materially improved in North America, while South America continued to see softer demand similar to the second quarter. In Europe, conditions remained favorable, although our quarterly volume was muted as a result of summer shutdown schedules in the region. By grade, tissue and packaging demand remains favorable, particularly in Asia, due to the stabilization of demand compared to prior year. These areas of strength are partially offset by the long-term secular decline in publication grades and softer demand in South America. The segment delivered adjusted EBITDA of $46.3 million and an EBITDA margin of approximately 27%.

Turning to Engineered Composites, the segment delivered another record quarter, with revenue of $179.7 million. Growth was driven by higher production rates across multiple programs, including LEAP, Boeing platforms, CH-53K, and missile programs. As has been the case throughout 2026, we are seeing stronger and more consistent EBITDA margins as we have worked to optimize our portfolio and improve efficiency. Looking forward, we expect additional margin expansion beginning in the second half of 2027, as contract modifications on the CH-53K begin having an impact, and we add new contracts to the portfolio. Demand across our core commercial aerospace and defense programs remains strong, and we continue to see production rates build across multiple platforms.

In defense, we continued to engage in constructive dialogue with the Department of War to support the rebuilding of the U.S. missile supply chain and provide innovative solutions that address critical defense needs with faster production rates and lighter weight solutions. Beyond defense, we are continuing to expand the application of our technology across next generational commercial platforms. Our inclusion in the Wing of Tomorrow program demonstrates the potential for Albany 3D woven, braiding, automation, and resin transfer molding solutions to support meaningful advances to lighter weight, more durable, and more efficient composite aerostructures for future aircraft. Taken together, Engineered Composites is entering its next phase from a much stronger position. We are executing at a higher production rate, have expanded our pipeline of new opportunities, and increased our focus on higher value applications where our technology can deliver industry-leading solutions.

As we stand here today, we reflect about how, with more than 130 years of material science expertise and innovation, we are now beginning to accelerate the potential of our technology. We continue to evolve and find new ways to provide solutions using our technologies, and we look forward to sharing more about the advances and new applications for our technology at our upcoming Investor Day in New York City in December, where we will update you on our outlook for 2030 and beyond. With that, I will turn the call over to Sean Valashinas, our Acting CFO, to review the financial results in more detail.

Thank you, Gunnar, and good morning. Before turning to the financials, I would like to remind you that a reconciliation of GAAP to non-GAAP measures discussed today can be found in last night's press release. Third quarter revenue was $349.5 million, representing growth of 34% year-over-year. This increase was driven primarily by higher activity levels in Engineered Composites as key programs continued to ramp, moderated by a modest decline in Machine Clothing. Adjusted EBITDA for the quarter was $100.1 million, or 28.6% of sales, which benefited from approximately $44 million reversal of the reach-forward loss. We also benefited in the quarter from a tariff refund and other discrete items. This compared to a loss in the prior year of $91.1 million, which included $147.3 million charge related to the CH-53K program.