Albany International (AIN) Q3 2026 Earnings Call Transcript

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DATE

Thursday, Oct. 29, 2026

CALL PARTICIPANTS

• Director of investor relations - Karen Blomquist
• President and CEO - Gunnar Kleveland
• Acting CFO - Sean C. Valashinas

TAKEAWAYS

• Revenue -- $349.5 million, an increase of 34% year over year driven by production ramps in engineered composites and a $12 million benefit from a contract renegotiation.
• Adjusted EBITDA -- $100.1 million, representing a 28.6% margin and including a $44 million reach-forward loss reversal.
• Adjusted Diluted EPS -- $1.68, which exceeded the company's previously revised output range provided after its strategic review.
• Machine Clothing Revenue -- $169.8 million, a slight decrease from the prior year due to customer consolidation and capacity rationalization in the Americas.
• AEC Revenue -- $179.7 million, a record for the segment driven by higher production rates on the LEAP, Boeing 787, and missile programs.
• CH-53K Impact -- $12 million to revenue and $44 million to adjusted EBITDA, following a renegotiation that improved the long-term economics of the program.
• AEC Underlying EBITDA Margin -- 12.5%, when excluding the impact of contract renegotiations and other one-time discrete items during the quarter.
• IBAS Award -- $21.2 million, intended to support the development of a vertically integrated facility for ceramic matrix composites.
• Q4 Revenue Guidance -- $325 million to $335 million, as management expects continued growth in engineered composites offset by soft demand in machine clothing.
• Q4 Adjusted EPS Guidance -- $0.65 to $0.75 per diluted share.
• Free Cash Flow -- $36.5 million, compared to $25.7 million in the prior year period, aided by contract settlements and tariff refunds.
• Capital Expenditures -- $12.2 million, a decrease from $18.3 million last year reflecting a focus on facility optimization.
• Net Debt -- $343 million, which management reduced through debt repayments as the company's cash position improved.
• Available Capital -- $457 million, providing liquidity for future investments, potential acquisitions, and shareholder returns.
• AEC Margin Target -- mid-teens, which the company aims to achieve by the exit of 2027 through increased pricing and volume.
• Gross Profit -- $140.4 million, with a 40.2% margin that benefited from a $33.4 million adjustment related to the amended CH-53K contract.
• Operating Income -- $59.4 million, representing a 17% margin compared to an operating loss in the previous year.
• Research and Development Expense -- $12.2 million, reflecting continued investment in material science and innovation.
• Interest Expense -- $5.3 million, down from $5.9 million last year due to lower overall leverage.
• Total Debt -- $422.1 million, compared to a cash balance of $79.1 million at the end of the quarter.
• Machine Clothing Adjusted EBITDA -- $46.3 million, yielding a 27.2% margin despite unfavorable regional mix and lower volume.
• Effective Tax Rate -- 24.9% for the third quarter, with an expected increase to 29.5% for the fourth quarter.

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RISKS

• Kleveland stated, "In The Americas, end market conditions and order rates materially improved in North America while South America continued to see softer demand," identifying regional weakness in the machine clothing segment.
• Valashinas noted that "customer consolidation and capacity rationalization actions taken by papermakers over the past year have reduced volume levels in certain markets," impacting machine clothing volume.

SUMMARY

Albany International Corp. (NYSE:AIN) reported record quarterly revenue and the conclusion of its strategic review concerning the CH-53K program. Management stated that a settlement with Sikorsky has established a more stable foundation for the Salt Lake City manufacturing site and improved long-term program economics. The company is transitioning its focus toward growth opportunities in commercial aerospace, defense, and hypersonics, supported by new government awards and technological differentiation.

• Management transitioned focus from resolving legacy program issues to scaling the engineered composites pipeline. CEO Kleveland stated, "our focus is shifting decisively from addressing legacy challenges to building for growth."
• The company is integrating ceramics matrix composites (CMC) capabilities to meet demand for high-temperature defense applications. Kleveland noted, "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."
• Strategic missile programs are expected to provide near-term financial impact. Kleveland indicated, "I think we will start seeing impact in 2027 and definitely in 2028 rather than 2030."
• Machine clothing operations are recovering from a previous equipment failure. Kleveland stated, "the plan continues to be to be caught up by the year end."
• AEC margins are projected to expand as legacy contracts are renegotiated or exited. CFO Valashinas stated, "our goal as we exit 2027 is to be in the mid teens in this business."

INDUSTRY GLOSSARY

• Machine Clothing (MC): Specialized fabrics and process belts used in the manufacturing of paper, paperboard, and tissue products.
• Albany Engineered Composites (AEC): A business segment specializing in high-performance 3D-woven and injected composite components for aerospace and defense.
• CH-53K: A heavy-lift helicopter program for which Albany provides structural components.
• IBAS: Industrial Base Analysis and Sustainment, a Department of Defense program to support essential industrial capabilities.
• Ceramic Matrix Composites (CMC): High-temperature materials used in advanced aerospace and missile applications.
• LEAP: A next-generation turbofan engine used on single-aisle aircraft for which Albany provides fan blades and cases.
• Resin Transfer Molding (RTM): A manufacturing process for composites where liquid resin is injected into a mold containing dry fibers.

Full Conference Call Transcript

Operator: Hello, everyone. Thank you for joining us, and welcome to the Albany International Third Quarter 26 Earnings. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. I will now hand the conference call over to Karen Blomquist, director of investor relations. Karen, please go ahead.

Karen Blomquist: 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. 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 10/28/2026, as well as our SEC filings, including our 10-Q and our 10-Ks. Now I will turn the call over to Gunnar Kleveland, our President and CEO, who will provide opening remarks. Gunnar?

Gunnar Kleveland: Thank you, Karen. Good morning, everyone, and thank you for joining our third-quarterly earnings call. The past 3 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. Also, 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 sales 3 k program and provides a more stable foundation for the Salt Lake City manufacturing site and our business going forward.

I am incredibly proud of the team at our Salt Lake City 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 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. Seeing stronger execution, improved program visibility, and a growing pipeline of opportunities across commercial aerospace, defense, missiles, hypersonics, and next generation aircraft applications.

We are also continuing to engage with customers and government partners, evidence 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 ceramics 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 position. 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 are 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 the benefit of approximately $12 million related to the renegotiated CH 53 k contract.

We also delivered adjusted EBITDA of $100.1 million and adjusted diluted EPS of $1.68. Above the high end of the revised output 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 are winning new business. This is translating to stronger, healthier, and more reliable growth. Next, I would 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 remained 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 20%. 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 53 k, and missile programs. As has been the case throughout 2026, we are seeing stronger and more consistent EBITDA margins as we work to optimize our portfolio and improve efficiency. Looking forward, we expect additional margin expansion beginning in the second half of 27 as contract modifications on the CH 53 k 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 US 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 application of our technology across next generation of 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 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 for our technology that can deliver industry leading solutions. As we stand here today, we reflect on how 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 C. Valashinas, our acting CFO to review the financial results in more detail.

Sean C. Valashinas: 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 from the reversal of the reach forward loss. We also benefited in the quarter from a tariff refund and other 1-time discrete items.

This compared to a loss in the prior year of $91.1 million which included a $147.3 million charge related to the CH 53 k program. By segment and beginning with machine clothing, revenue of $170 million was at the high end of our expectation. We saw continued stability in Europe, signs of stabilization in China, and softness in North And South America. As previously mentioned in The Americas, customer consolidation and capacity rationalization actions taken by papermakers over the past year have reduced volume levels in certain markets. Nonetheless, we maintain our strong market share in The Americas. Adjusted EBITDA for the segment was $46.3 million with a margin of 27.2%.

The machine clothing business continues to deliver strong margins, reflecting disciplined cost management operational execution, and the ongoing benefits from integration and efficiency initiatives. Compared to the prior year, margins contracted slightly as a result of unfavorable regional mix and lower overall volume. In engineered composites, segment revenue was $179.7 million which marked a quarterly record for the segment. Performance was strong against all of our major programs, and was above our estimates due to the pull forward of tooling in the quarter for a next generation contract with a defense prime. Segment growth year over year was widespread across programs, including higher volume of LEAP, Boeing 787, and missile programs.

Adjusted EBITDA for the segment was $65.6 million or 36.5% of sales compared to a loss of $134.6 million In the prior year. As a reminder, in the third quarter of 2025, the initiation of the strategic review on the CH-53K program reduced revenue by approximately $46 million and operating profit by approximately $147 million as we recorded charges associated with the program's loss position. Over the past year, we have continued to execute on the program and have substantially consumed that loss reserve through production activity. The renegotiation of the CH 53 k program reached during the third quarter of 2026 resulted in a positive impact of approximately $12 million to revenue and $44 million to adjusted EBITDA.

The timing of that benefit relates to the structure of the settlement. Importantly, the settlement removes uncertainty improves the long term economics of the program, and further validates the progress our team has made in transforming engineered composites from a business focused on resolving legacy challenges into 1 positioned to create value through operational execution and profitable growth. Gross profit for the quarter was $140.4 million with a margin of 40.2% compared to a loss of $49.9 million in the prior year. Gross profit benefited in the quarter by $33.4 million related to the renegotiated CH 53 k contract.

The improvement in gross margin year over year reflects adjustments of the amended CH 53 k contract and stronger margins in engineered composites. Operating income was $59.4 million, representing a margin of 17% compared to a loss of $116.5 million last year. The improvement was driven by the CH 53 k contract amendment. Interest expense decreased to $5.3 million compared to $5.9 million last year, as we paid down debt and focused on reducing leverage. Other income was a net benefit of $1.7 million compared to a net benefit of $347 thousand the prior year due to foreign currency translation impacts. The effective tax rate for the quarter was 24.9%, compared to 20% in the prior year.

Free cash flow was a net gain of $36.5 million compared to a net gain of $25.7 million in the prior period. The year over year increase was driven by a number of items, including benefits from the renegotiated contract, tariff refunds, and the vendor credit. Capital expenditures for the quarter totaled $12.2 million compared to $18.3 million in the prior year, as our focus on facility optimization lowered expenditures. R&D expense was $12.2 million, reflecting our continued focus on innovation. We ended the quarter with $79.1 million in cash, and $422.1 million in total debt resulting in net debt of approximately $343 million. As the company's improved cash position allowed for debt repayment while improving overall liquidity.

Including revolver availability, we have approximately $457 million of available capital providing flexibility to support ongoing investments, and return capital to shareholders. Turning to our outlook, and beginning with machine clothing. The demand environment remains fluid and mixed by geography. We continue to see stable demand in Europe, signs of stabilization in China at current levels, and softer demand in North And South America. Given these trends and the impact of customer consolidation and capacity rationalization across parts of the paper industry, we continue to expect full year machine clothing revenue to be slightly down compared to 2025. In engineered composites, we expect continued year over year growth supported by ongoing program ramps across both commercial and defense platforms.

For the fourth quarter of 2026, we continue to expect consolidated revenue in the range of $325 million to $335 million. We anticipate adjusted EPS in the range of $0.65 to $0.75 per diluted share and an effective tax rate of approximately 29.5%. Now we would like to open the call for questions. Operator?

Operator: We will now begin the question-and-answer session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Chigusa Katoku from JPMorgan. Your line is open. Please go ahead.

Chigusa Katoku: Hi. Good morning. Thanks for taking my question. So my first question is on the AAC margins. So there were adjustments for the 53K contract, both the top line and the EBITDA. Line. And, also, I think you called out in your prepared remarks some tariff refund and discrete items. So adjusting for all of those, what was the underlying EBITDA margin profile of the segment in the third quarter?

Sean C. Valashinas: Yes, Chigusa, The tariff refunds were spread across both businesses, so really not as much to AEC. But if you back away the all of the impacts that you laid out there, you are looking at about a margin profile of 12.5% EBITDA margin for the quarter in AEC excluding those charges.

Chigusa Katoku: Okay. that is great. And so is the 12 and a half ish percent a reasonable assumption as we kind of model out at least through the first quarter of 2027. And then from the third quarter, I think you will have some ramp in margins. If you have any color there, that would be great.

Sean C. Valashinas: Yeah. Sure. Thanks. So the 12.5% should. As we move into the fourth quarter and the beginning of 2027, that is a reasonable approximation. We will start to see some growth as we move in into the future quarters. But start with 12.5 as a base and then some reasonable growth coming out of that. And, really, the growth is driven by a number of things that we started to experience this quarter. We landed on increased pricing with some of our existing contracts We obviously renegotiated the legacy contracts that were in a lost position or exit of them, for instance, on Gulfstream. We had increased volume and activity levels on our existing contracts. And, again, we renegotiated contracts.

So we hit on all cylinders and have really started to execute in that business. And so you will see us increase margins as we move through the quarters into 2027. And our goal as we exit 2027 is to be in the mid teens in this business.

Chigusa Katoku: Okay. Great. Thanks. And if I could squeeze 1 more in. If I may. On the AC top line, I think there were adjustments from the CH-53 this quarter, and also last quarter had some adjustments too. So what was the underlying growth rate of the business this quarter? And I think next quarter, you are assuming about that growth. So kind of the right run rate to think about heading into 2027.

Gunnar Kleveland: Good morning, Chigusa. I think you said the engineered composite and the growth there. The primary growth for our engineered composites segment is our current program. So there is there is growth on LEAP there is growth on the Boeing wide-body frames. there is growth in the missile. And there are growth in the engine. Section of the business. There are some new programs that are starting to take effect. You will see more of that effect as we go through 2027, which we will also talk more about at the Investor Day here in December. Okay. Great. Looking forward to the Investor Day. Thank you. Thank you.

Operator: Your next question comes from the line of Alexandra Eleni Mandery from Truist Securities. Your line is open. Please go ahead.

Alexandra Eleni Mandery: Hey. Good morning, and thank you for taking my question. What capacity and CapEx do missile hypersonics ramps need CapEx was down versus last year as a result of facility optimization. So is that lower level sustainable? And you also had that $21.2 million IBAS contract to support hypersonic and solid rocket motor manufacturing. If you could discuss how that plays into the build out.

Gunnar Kleveland: Good morning, Alexandra. You partially answered your question with the IBAS award that we have. We. We have done significant investment in creating the capability of ceramics matrix composites. And we have the capability. We are doing development there. The additional money from IBAS will allow us to do everything in house. So it adds machining capability, as well as quality inspection as well as an addition to the densification process. That we currently do not have. And there is some investment from our side there, but limited. Now this is a capacity that is untapped in a in a very high demand area right now as I think everyone knows.

Eventually, we will run out of capacity in Rochester, and the investment beyond that we will try to do in the same manner by some investment on our own and some investment from either our or the government. So that is working, and that is the plan. As far as the capital, we are going to be, very constructive in how we use the money that we use for capital and there is going to be growth capital for both for mostly our new programs. But we have pulled back on the capital expenditures as you saw this year. We expect to continue to invest in the significant growth that we see from Engineered Composites. Great.

And then can you update us on the progress of the catch up in volumes after the equipment failure in Machine Clothing? And I guess, do you still expect those volumes to be caught up by year end? Or maybe pushed into 2027?

Alexandra Eleni Mandery: Yeah.

Gunnar Kleveland: The equipment continues to run, and so the plan continues to be to be caught up by the. By year end. And we see that as absolutely possible, especially since the machine is now being assembled. At our site. The new machine is being assembled and will be up and running by the end of the year. So I think we have we have been able to maintain the current machine and deliver on it through the year. Without any more downtime, and that risk is significantly lowered As well. Perfect. Thank you. Thank you.

Operator: Your next question comes from the line of Jan Engelbrecht from Baird. Your line is open. Please go ahead.

Jan Engelbrecht: Thanks. Good morning, Gunnar and Sean. Thanks for taking our questions. I think I wanted to just focus a little bit again on the missile programs. You guys called out in the release that it contributed to third quarter AEC growth. But then we saw a nice announcement on the IBAS award for $21 million, and then also the expansion of your facility, I think, last week through a press release. But at a high level, should we think of sort of production content on the missile business versus qualifying new components And sort of the time line that it usually takes since you start talking with the customer to getting qualified and then entering production?

Is it sort of similar to the IVAS contract sort of 30 months? Or just how should we think about that?

Gunnar Kleveland: Hi. Good morning. it is a good question, Some of the growth that we are seeing is primarily in the in the programs, JASM, LRASM, where we are already seeing significant demand, and we are ramping up with the new contracts we are getting from our customer. The I would say in a normal environment, once you get on the program, it takes 24 to 36 months to ramp up. With the need for speed in the current market, I expect it to be faster. We are working with several of the OEMs for missiles I am not sure which ones we will we will end up with, but it is going to be on an accelerated schedule.

Some of this is R&D, and development. On the programs. And you will start seeing that in 2027. I think as I have. I have said before, this used to be medium to long term, then I said it was a medium. now I say it is medium to near term. now it is more near term. I think we will start seeing impact in 2027 and definitely in 2028 rather than 2030. 30 months out. We have the capability today What the IBAS contract does is increase and broaden the scope of our capabilities. So 3 years from now, when we are fully deployed on every, opportunity is when we have the highest impact.

But there is definitely opportunity for us to deliver both in 2027 and 2028. Great. Thanks, Gunnar.

Jan Engelbrecht: And if I can have a follow-up, you guys obviously had very strong cash generation in the third quarter here. There was some pull forward from the CH-53 contract, but I know that is a focus area since you have since you have taken over. it is cash generation, but just how should we think about steady state cash dynamics for Albany? I know there is maybe some working capital investments that you need to make given the demand. But how should we think about that?

I know you cannot talk too much ahead of the Investor Day, but just as we are exiting 2026, what sort of the steady state or are you guys targeting operating cash growth in 2027, if you can comment on that?

Sean C. Valashinas: Yeah. Yeah. Yeah. And I will take that 1. I think you hit it well. Right? We will share more as we get into investment Day in December. But if you think about Q4 and as we move into the beginning of Q1, right, What you saw this quarter we certainly have started to focus there is a high degree of focus on cash flow within the business right now. Right? We are generating improvements across the business. I do not know that I would characterize the 53 k renegotiation as a driver of cash flow in the quarter. We will start to see that into the fourth quarter and into 2027.

Particularly in all 4 quarters into 2027 as well. So you will see some of that, but I think you can see our historic results in Q4 have typically been very strong cash flow in the quarter. I think you can you can expect to see strong cash flow, maybe consistent with what we have seen in Q3 or near that. Then as we move into Q1, that will follow the historic patterns that you have seen typically. But like you said, we will share more of that at Investor Day as we move into December.

Jan Engelbrecht: Okay. Great. Sure. If I could squeeze in 1 more question. Just high level thoughts that you guys have on capital deployment in terms of potential acquisitions, organic investments. I know you guys have talked about being very adamant about not betting on structures assembly work. In AEC, but high level thoughts on capital deployment as we sort of exit this year. Thank you.

Gunnar Kleveland: Yes. it is going to continue to be disciplined. But, clearly, with some of these structural issues that we have now behind us. I will take more seriously some of the inbounds that we have for potential acquisitions. We have the capability to do that. I know we have the team that can incorporate an acquisition. But we also have a lot of organic opportunities. So it will be a continued discipline approach and including our dividends. Great. Thanks, Gunnar. Thanks, Sean. Appreciate the time. Thanks, Sean.

Operator: There are no further questions at this time. I will now turn the call back over to Gunnar Kleveland for closing remarks.

Gunnar Kleveland: Thank you. And thank you everyone for joining us on the call today. We look forward to sharing more information and long term targets in December at our Investor Day. If you have any questions about the event, please contact Karen. Thank you, and have a good day.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

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