Ladies and gentlemen, thank you for standing by. Welcome to the Albany International first quarter earnings call. At this time, your telephone lines are in a listen-only mode. Later, there will be an opportunity for questions and answers, with instructions given at that time. If you should require assistance during your call, please press star then zero and an AT&T specialist will assist you offline. As a reminder, your conference call today is being recorded. I will now turn the conference call over to your host, Director of Investor Relations, John Hobbs.

Thank you, Alan, and good morning everyone. Welcome to Albany International’s first quarter 2022 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 associated 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, among which are the potential effects of the COVID-19 pandemic and the potential effects of the Russian invasion of Ukraine on our operations, the markets we serve and our financial results. For a full discussion, including a reconciliation of non-GAAP measures we may use on the call to their most comparable GAAP measures, please refer to both our earnings release of April 25, 2022 as well as our SEC filings, including our 10-K. Now I’ll turn the call over to Bill Higgins, our President and Chief Executive Officer, who will provide opening remarks.

Thank you, John. Good morning. Welcome everyone and thank you for joining our first earnings call of 2022. Today I’ll comment on our first quarter results, our strategic progress and corporate governance, and Stephen will then cover our financial results in more detail. First, let me express our concern for the people of Ukraine following the Russian invasion. The will of the Ukrainian people and the resistance is inspiring and we hope this senseless war comes to an end soon. Like many companies, Albany has ceased doing business in Russia. Specifically, we have stopped shipping machine clothing belts to paper companies in Russia and we’re withdrawing from a very small joint venture in Russia that produced belts for local paper manufacturers. Our business exposure in Ukraine is small. We have no employees there, and we typically export a modest amount of machine clothing to paper making customers there, and we look forward to continuing to support those customers in the future. The combined effects had a minor impact on our first quarter results, which Stephen will outline. Our 2022 outlook assumes no Russian sales moving forward. Suffice it to say 2022 has already started out as another year with unpredictable events, the effects of which may not be entirely visible yet. Despite the unpredictable environment, I’m pleased to report strong revenue growth in the first quarter in both our business segments. In fact, our aerospace composite segment grew net sales by more than 20% and our machine clothing segment posted mid-single digit growth compared to the first quarter last year. In the first quarter, we achieved GAAP EPS of $0.87 per share, up $0.02 per share from last year’s $0.85, and adjusted EPS of $0.91 per share versus $0.87 per share adjusted EPS last year. Most impressive is our teams’ ability to be adaptive to work together to overcome difficult supply chain challenges, logistics barriers, material shortages while re-planning operations to deliver to our customers on time. In machine clothing, for example, we continue to see delays of raw material deliveries from our suppliers but we were still able to hit record levels of output, improved absorption and productivity, delivered to customers on time, and produced excellent financial results. This took a lot of extra effort working across the globe to share materials and rebalance factory capacity and output. We have great teams that are performing exceptionally well. On the cost front, we’re closely monitoring and actively managing inflationary pressures in materials, wages, logistics and energy. We’re passing through cost increases where we can. Inflationary cost increases continued into Q2 and are expected to impact our profitability for the year overall. For example, rail transport from China to Europe across Russia is no longer viable and has been replaced by boat transport, adding cost and doubling the shipping time. Truck transportation within China is stymied by pandemic lockdowns and driver quarantines, and truck availability in Europe is impacted by the loss of Ukrainian truck drivers who returned home, contributing to an estimated 10% reduction of truck transport capacity in Western Europe. On a positive note, we continue to be nimble and flexible. Our supply chain and operations teams have demonstrated their agility by navigating the challenges of the last two years and the first quarter remarkably well. Despite this unpredictable global environment, we’re optimistic about our growth opportunities. Our strategy is to invest in R&D and product development to drive organic growth, to collaborate with key customers to design the next generation of advanced materials for long term growth, and to position Albany as the technology leader and partner of choice in both of our segments. This means we must be good at both developing advanced material solutions and operational performance. In machine clothing, we have a strong operating culture. We have earned a reputation for producing products of exceptional quality and durability for our customers. We’re the global technology and market share leader in paper machine clothing, a market whose underlying long term demand trends are expected to grow with economic activity, ecommerce trends, and a secular shift towards renewable and recyclable materials as paper replaces plastic. In our engineered composite segment, our strategy is consistent: to bring the next generation of advanced materials to market and to earn a reputation for operational excellence and great customer service. It started with our development of 3D woven composites in collaboration with Safran on LEAP engine fan blades and fan cases. The durability and performance of 3D woven composites exceed the performance of any other fan blade materials, titanium or 2D composite blades. Moreover, we achieved high rates of commercial production and demonstrated the commercial feasibility of 3D woven composite components. Our success with LEAP is a springboard to propagate the use of 3D woven structures across the aircraft. We’re excited by the long term opportunities for advanced 3D woven composites on the next generation airframe and engines with a variety of OEM and Tier 1 customers and partners. In the near term, we’re ramping up production on the LEAP program and preparing our factory for our most recent win, the aft transition for the Sikorski CH-53K helicopter, which positions Albany as a major player in rotary aircraft. Layered into the future, these programs and opportunities lay the foundation for sustainable long term organic growth. The strategy takes advantage of long term secular trends driven by climate change and energy efficiency. Our aim is to be at the center of this shift to lighter composite aircraft that are fuel efficient. Now let me make a couple of comments about recent changes in our corporate governance. First, we’re pleased to welcome two new members to our board of directors, Christy Alvord and Russell Tony. As part of our board refreshment process, we’re excited to have Christy and Russell join Albany. They bring strategic, operational, technical leadership experience to the board. With their collective experience in materials, aerospace, technology, and diversified global manufacturing, our governance and strategic planning and growth capability is enhanced. Second, we have effectively transitioned Albany to a single class share structure. One hundred percent of Class B shares have now been converted to Class A shares and all outstanding common stock is now Class A, therefore all shareholders now have equal voting rights. Our next step will be the formal retirement of the dual class structure in our by-laws, which we intend to bring to a shareholder vote in 2023.

Thank you, Bill. Good morning to everyone. I will talk first about the results for the quarter and then provide an update on our outlook for our business for the balance of the year. For the first quarter, total company net sales were $244.2 million, an increase of 9.8% compared to the $222.4 million delivered in the same quarter last year. Adjusting for currency translation effects, principally the decline in the euro relative to the U.S. dollar, net sales increased by 11.5% year-over-year in the quarter. In machine clothing, also adjusting for currency translation effects, net sales were up 5.7% year-over-year, driven by growth in all grades of product. Engineered composites net sales, again after adjusting for currency translation effects, grew by 23.1% with growth on LEAP and CH-53K partially offset by a decline on the F-35 platform. During the quarter, the LEAP program generated revenue of almost $38 million compared to a little under $27 million in the same quarter last year. LEAP revenue was also up significantly sequentially as we have now completed the planned de-stocking of our finished goods. We finished Q1 with less than 100 LEAP 1B engine chipsets in stock, in line with the safety stock levels required under our contract. First quarter gross profit for the company was $91.6 million, an increase of 3.5% from the comparable period last year. The overall gross margin declined by 130 basis points from 39.8% to 37.5% of net sales, caused mainly by the mix shift due to AEC’s top line growth outpacing that of the MC segment and a lower gross margin in AEC. Within the MC segment, gross margin was flat at 51.5% of net sales as the drop-through benefit of the increased revenue was fully offset by higher input costs and fully reserving about $600,000 of WIP and finished goods that had been destined for Russian customers. Within AEC, gross margin declined from 16.4% to 13.6% of net sales, caused primarily by raw material and WIP reserve, mix effects, and a slightly larger net unfavorable change to long-term contract profitability. During the quarter, raw material held at a third party storage facility was determined to have been stored inappropriately with temperature fluctuations that effectively consumed its useful life. While we will pursue options for recovery of some or all of our loss, we made the determination to reserve $2.4 million in Q1 for the raw material and the WIP into which the suspect material had been incorporated. To the extent that our recovery initiatives are successful in a future quarter, we would at that time reduce the reserve appropriately. First quarter selling, technical, general and research expenses increased from $46.7 million in the prior year quarter to $52.6 million in the current quarter and increased as a percentage of net sales from 21.0% to 21.5%, caused primarily by the impact of our decision to exit the Russian market and higher R&D expenses. During the quarter, we fully reserved about $1.2 million in receivables from our Russian customers. Total operating income for the company was $38.8 million, down from $41.8 million in the prior year quarter. Machine clothing operating income decreased by about $700,000 caused by the higher gross profit being more than offset by higher STG&R and restructuring expenses; meanwhile, AEC operating income decreased by about $1.7 million caused by lower gross profit and higher STG&R expense. Other income and expense in the quarter netted to income of $3.9 million compared to an expense of about $600,000 in the same period last year. The improvement was primarily driven by a more beneficial foreign currency revaluation effect in this quarter, partially offset by the write-down of the $800,000 net book value of our equity stake in our small Russian paper machine clothing joint venture. With respect to the latter, we have provided notice to our joint venture partner of our intention to fully exit that relationship. The income tax rate for this quarter was 28.1% compared to 26.7% in the prior year quarter. The higher rate this quarter is primarily due to the absence of a beneficial true-up of estimated tax payments recognized in the first quarter last year. Net income attributable to the company for the quarter was $27.7 million, essentially flat compared to last year as the lower operating income and higher tax rate were only partially offset by the favorable change in other income and expense. Earnings per share was $0.87 this quarter compared to $0.85 in the same period last year. After adjusting for the impact of foreign currency revaluation gains and losses, restructuring expenses, the discrete impact of exiting the Russian market, and expenses associated with the CirComp acquisition and integration, adjusted earnings per share was $0.91 this quarter compared to $0.87 last year. Adjusted EBITDA increased slightly to $61 million for the most recent quarter compared to the same period last year. Machine clothing adjusted EBITDA was $57.7 million or 37.4% of net sales this year, up from $54.9 million or 37.1% of net sales in the prior year quarter. AEC adjusted EBITDA was $13.7 million or 15.2% of net sales, down from last year’s $16.7 million or 22.6% of net sales. During the quarter, the company had negative free cash flow, defined as net cash used in operating activities less capital expenditures of about $21.1 million. This was not at all unexpected as it is typical for the company to have negative cash flow in the first quarter due to seasonality in receipts and incentive compensation payments for performance in the past year. This quarter’s cash flow performance does not change our outlook for free cash flow for the full year. During the first quarter, we returned over $50 million of cash to our investors, comprised of over $6 million in regular dividends and almost $44 million in share repurchases. We repurchased almost 515,000 shares during the first quarter at an average price of $85.35. Share repurchases have continued in Q2. Our net leverage ratio is now about 0.52, which still provides us significant flexibility to return cash to shareholders without impairing our ability to make strategic investments should an opportunity arise. I would now like to provide an update on our financial guidance for 2022. Machine clothing had a very good quarter with a strong top line more than making up for some of the headwinds we talked about on the prior call, including input cost increases and the weak euro; however, we continue to see risks in the balance of the year. First, it is unlikely that the high sales performance we saw this year will continue at the same level as we believe that the revenue growth we saw this quarter in both the North American and European markets exceeded underlying demand and was driven by timing of certain customer requirements. In future quarters, we do not expect to be able to fully offset the impact of input cost inflation through higher revenue driving increased drop-through. This challenge is exacerbated by the fact that inflation is still rising. In fact, in the 10 weeks since we issued our initial financial guidance for 2022, our assessment of the impact of inflation on the segment’s bottom line for the full year has risen by about $4 million. Second, the risk of the de-stocking cycle we discussed on our last call remains. Many of our customers have continued to operate with higher than normal safety stock of our finished goods at their facilities, driven by fear of future supply chain disruptions. Given global events, including the invasion of Ukraine and resulting sanctions, the inflationary environment, and the lingering impact of the pandemic, those fears did not abate in the first quarter. We do not know when or to what extent that risk will manifest itself in terms of impacts to our revenue, but it is still possible we will see some impact in 2022. Third, we have new challenges resulting from Russia’s invasion of Ukraine and the tragedy that is unfolding there. Direct impacts of our exit from the Russian market include both the write-offs and reserves that we recognized in the first quarter and the loss of approximately $10 million in sales per year. As Bill noted, there also have been significant disruptions to the cost and availability of shipping options between Asia and Europe. Potential indirect impacts, such as effects on our supply chain or to global demand for our customers’ end products, are unknown at this time but could be significant. As a result, we are maintaining our previously issued segment guidance for net sales of $590 million to $610 million and adjusted EBITDA of $205 million to $225 million. Turning to engineered composites, we are seeing no meaningful direct impacts from Russia’s invasion of Ukraine as the segment has almost no Russia-sourced revenue; however, there are secondary risks, most notably that our customers could see disruptions elsewhere in their supply chains or that the potential economic impact of the conflict and the sanction regime could disrupt the recovery in the global aerospace market. At this time, while it is not possible to assess the size or probability of the impact of these risks on the segment’s top line performance, we do not expect meaningful impact from those risks on our 2022 segment outlook. The first quarter was challenging from an underlying profitability perspective for the segment as the lower revenue on some fixed price programs, most notably on the F-35 program, meant that we did not see any improvement in gross margin from the higher revenue this quarter compared to last year. This effect combined with the raw material related reserve and the previously announced higher investments in new business pursuits and R&D caused us to temporarily deliver an adjusted EBITDA margin under 20%. For the full year, we still expect to deliver an adjusted EBITDA margin of over 20% for the segment, therefore we are maintaining our segment guidance for revenue of $330 million to $350 million and adjusted EBITDA of $65 million to $75 million. At the total company level, we are maintaining most of our previously issued full year guidance as follows: revenue of between $920 million and $960 million unchanged, effective income tax rate of 29% to 31% unchanged, depreciation and amortization of $75 million unchanged, capital expenditures in the range of $75 million to $85 million unchanged, GAAP earnings per share of between $2.76 and $3.26 updated from prior guidance of between $2.80 and $3.30, adjusted earnings per share of between $2.80 and $3.30 also unchanged, and adjusted EBITDA of between $215 million and $245 million, also unchanged. Returning to the present, it does remain a challenging environment. Over the past three years, our employees have had to deal with the effects of the 737 MAX grounding, the pandemic, the inflationary environment, and now the Ukrainian crisis. Through it all, our employees have performed admirably, particularly our production management, supply chain and human resources personnel who have had to manage through a constantly changing environment where every week has brought new challenges. The company owes all of our employees a debt of gratitude for their hard work, their diligence and persistence, and at all times their commitment to safety. With that, I would like to open the call for questions.

We’ll first go to the line of Pete Skibitski with Alembic Global. Go ahead.

It appears that the ramp on LEAP was quite strong, possibly exceeding 300 chipsets in the quarter. I'm curious if you believe there's good visibility for that ramp to continue. There are some uncertainties regarding China accepting deliveries, but from your perspective, does it look like everything is on track for LEAP?

I'm sorry, Pete, we missed the first part of your question. I’m not completely sure about some of the details, but I believe I understand your main concern. LEAP showed significant growth this quarter compared to the first quarter of last year. It may not be exactly the 300 chipsets you mentioned, but if you’re referring to total shipments or units produced, you’re likely in the right ballpark. We believe we have as much insight into demand as our direct customer, Safran, and we receive regular updates from them regarding their outlook. Right now, that outlook is not heavily reliant on the reopening of the Chinese market, though it will become important eventually, as that is a major market for single-aisle aircraft. We expect that 737s and A320s will be sold there in quantities similar to what we saw before the crisis. Currently, we believe our outlook for the remainder of this year is positive. As we look into 2023, there is more uncertainty, but I don’t think there are significant risks to our outlook for this year.

Okay, got it. One last one from me on machine clothing, also kind of related to China and the global economy with regards to the lockdowns in China. How much of that negatively impacts your revenue-wise in the quarter, and then there are some concerns about the potential for a global recession maybe early next year, late this year, and machine clothing, I think, is at least partially viewed as sort of a staple product, if you will, maybe modestly discretionary. How are you guys thinking about the potential for a meaningful slowdown in machine clothing late this year or next year, with the inventory in the channel, with the potential for the economy slowing? It’s been sort of a mixed record, I think historically if I look back, so what are your thoughts as you see it today?

Yes, Pete, let me start with that. So far, machine clothing has performed remarkably well, and we keep in fact, we were asking again last night, are we seeing any effects in China with the lockdowns now extending across Beijing in addition to Shanghai and other places, our facilities in China have been up and running. We’ve been able to keep them operating, so far so good. It feels pretty solid right now. I think that we’re watching the customers that we think have built up extra inventory because of the supply chain risk mitigation. That will probably continue for a little bit longer while we’re seeing these transport interruptions and bottlenecks and delays, but I think for now machine clothing looks pretty solid as we go into the year. Packaging tissue has been strong, particularly in North America. What happens in China longer term, is there a recession, those are big questions I’d like to know the answers to because, as we mentioned in the commentary, we’ve just been through the MAX, the pandemic, and now this war effect, so we hope we don’t go into a recession, but we don’t see any evidence of it affecting us just yet.

To your question about excess inventory, there is likely a total of tens of millions of dollars' worth of our products in the channel that would probably be consumed first if we experience a slowdown, which helps gauge the immediate risk level. While we are a staple product, as a consumable product, we tend to experience a less pronounced cycle compared to other members of the pulp and paper supply chain that offer more capital-intensive products. Our products do wear out, and looking at previous cycles, the volume consumed tends to decrease during economic downturns, but it is still cyclical. Overall, our cycle is much less pronounced than many other cyclical industries.

Yes Steve, I mean, tens of millions, which represents about 10% of your machine clothing revenue.

I wouldn’t say as high as 10%.

Okay, okay. All right, thanks so much, guys.

For our next question, we’ll go to the line of Peter Arment with Baird. Go ahead, please.

Yes, good morning. Morning Bill and Stephen. My question is really on just circling a little bit on what Pete was asking about on MC, just on kind of the top line cadence. I guess historically, your second quarter has always been a little bit stronger, seasonality, and just wondering, you mentioned there was some timing on some shipments with North America and Europe. How should we be thinking about the cadence? Do we still think we’re growing sequentially or, you know, it seems like it’d be a tough year-over-year number when you look at the second quarter last year in MC on the top line.

Yes, I don’t know that we’re looking for big growth. I mean, we’re holding our guidance, things feel pretty steady. Our bookings coming into the quarter are solid, so I think we feel like we’re in pretty good shape, but I don’t think we’re expecting a big step-up here.

Yes, Peter, we try not to get involved in giving quarterly guidance, but as Bill says, we are in a strong position heading into the second quarter, certainly. Our order book is strong, albeit probably on balance a little weaker than it might have been at the same time last year, so expecting another blowout quarter, we expect to see it continue to perform well but, as you mentioned, Q2 is a tough comp.

Yes, that’s helpful. I just wondered, Stephen, regarding foreign exchange, can you remind us about the dollar's continued strength against many other currencies globally and what your exposure is in that regard?

Yes, against the euro, we have sales of over $100 million in euros so clearly at the top line, we see a drag with the euro having come down. Last year, we had an average close to $1.20 in terms of the euro-dollar exchange rate. Now, we’re down a little north of parity, quite frankly - you know, it bounces around but down in that $1.06, $1.07 range at times. So top line, over $100 million; at the bottom line level, we’re long the euro still probably, round numbers in that, let’s say, close to $50 million range. As you look at that, the over 10% decrease we’ve seen this year in the euro, that will drive north of $5 million of impact to the bottom line.

Great, thanks so much.

Our next question will come from the line of John Franzreb with Sidoti & Company. Go ahead.

Good morning guys. Just on inflationary cost, I’m curious about what your staffing level looks like between the two segments. Are you fully staffed or are you still having any troubles kind of bringing people on board?

I would say in machine clothing, we’re fully staffed, John. In AEC, we’re adding folks for both the LEAP production growth as quickly as we look to exit this year, going into next year for the future, and then we’re building the CH-53K production facility in Salt Lake City, where we’re adding people as well, so we are staffing up folks there in very tight labor markets.

And when do you expect that to be done, Bill?

Well, the LEAP production, I think will go into next year. The CH-53K is probably most of it this year.

Okay. Just to go back to the China question, maybe I missed it, how much revenue was deferred out of the first quarter into the second, or was there any, because you did say you were fully operational.

In China, we were fully operational in the first quarter, and we did not observe any significant impact on our customers, whether in their operations or their demand during that period. The first quarter felt relatively unaffected by the current COVID situation in China, although there could potentially be impacts in Q2. Reports indicate that the virus is spreading to other cities, leading to stringent lockdowns similar to what we saw recently in Shanghai, but there was no effect on our Q1 results, and we did not experience any deferred revenue.

Great, thanks guys. I appreciate it.

Our next question will come from the line of Gautam Khanna with Cowen. Go ahead, please.

Hi, how’s it going, guys? I may have missed this, so pardon if I ask a repeated question, but on the LEAP 1B visibility that you guys have, how firm is that schedule? I just wonder how much has changed around over the last six months and how far of a forecast forward do you get from Safran on those. Are you guys still kind of comfortable with the 2000 deliveries of total LEAP product that they talked about for 2023? That’s my first question.

Yes, so I think maybe the context, Gautam, is that our production isn’t directly linked to what Boeing’s doing, or even engine shipments. We work it out with Safran on production we’re going to plan for the year. We set that in motion in January, kick it off, and in some years, like when the pandemic hit, it got changed quite a bit; but this year, it’s pretty steady, so we’re working to a production plan that we’ve agreed to with Safran that might be a little different than what you’re seeing with Boeing.

Okay, and then one of the things we hear from a number of industrial companies is inflation in resins and availability of resins has come down. Has that impacted any of the carbon fiber prepreg product that you guys are sourcing, or is that all well sourced and you don’t see the inflation in those inputs?

We are experiencing inflation in the costs of materials, resins, yarns, and chemicals in both AEC and MC segments. Both segments are actively managing this situation on a daily basis; it requires constant attention. If you were part of our business reviews with our supply chain teams, you would realize the extensive effort involved in maintaining production. In the machine clothing segment, we manufacture some of our own polymers since our products are custom-made; we purchase a variety of polymers in different sizes and types, so we are increasing our internal production to meet our demands. Additionally, on the AEC side, we collaborate with major OEMs like Safran and Sikorsky for our material purchases.

Yes, for most of the end item raw materials, the resins, carbon fiber, whether it’s prepreg or just raw carbon fiber that we use in AEC, there are long term contracts entered with those suppliers by our customers and we are buying under those agreements, and so we’re a little bit insulated from the impact of inflation in AEC, not completely. Certainly a lot of the non-end item materials, whether it be gloves, release agents, vacuum bags, everything else that goes into making parts, we are procuring on the open market and are subject to inflation, just like any company; but on a lot of the end item raw materials that are in the finished product, as I say, they’re bought under contracts our customers negotiate and we, along with other suppliers to those customers, are buying under that master contract.

That’s very helpful. Then on 787, can you talk a little bit about what your expectations are for the year, where we are in that de-stock, and have you seen any uptick yet in production queues to you guys?

Yes, we don’t have it in the commentary because we’re just running the line to keep it warm, and that’s sort of the plan for this year. We have very little in the plan for this year.

Our revenue for the quarter on 787 was under $2 million, and we finished last year close to $10 million, so you can consider that relatively flat due to some fluctuations from quarter to quarter. Currently, we are not seeing any increase in activity. The plan is to keep the line warm and operate at the lowest possible level.

Great, and one last one. We talked about Russia-Ukraine as a risk. Is there any forthcoming opportunities that are created by it? I don’t know - are any of your customers sourcing Russia-Ukraine that may want to create their own infrastructure outside of the region on the machine clothing side, or is it just a potential negative?

I don’t see any opportunity at this point. It’s probably slowed down Europe a little bit more. North America has been very strong. I was happy to see that the strike in Finland ended, but I don’t see any upside from the Russian invasion.

Thanks guys.

Thank you, Gautam.

Our next question will come from the line of Michael Ciarmoli with Truist Securities. Go ahead.

Hey, good morning guys. Thanks for taking the questions here. Bill or Stephen, all the commentary around machine clothing risks seemingly significantly increasing, you’ve got the Russian headwind, why not lower the guidance? It seems like your commentary is much more biased to the downside there.

We had a very strong first quarter that puts us in a good position, mitigates some of the risks, and allows us to maintain our guidance range. It's still early in the year, and there are many uncertainties ahead. Until we have more clarity on how these uncertainties will develop, it's premature to consider changing our guidance in either direction for either segment unless something is certain at this point.

Okay, that makes sense. You mentioned that inflation is still rising and highlighted the associated risks. I wanted to check in on whether your confidence in reaching the $450 million in revenue in AEC by 2023 has changed, considering the current state of the world and the increasing uncertainties. Have there been any shifts in sentiment regarding that?

No sentiment change. There is definitely more global uncertainty compared to when we last spoke two and a half months ago, particularly due to the invasion and the ongoing sanctions. However, we are not regretting our previous statement. We still feel generally positive about the outlook and will provide better guidance for 2023 when we meet again in nine months.

Taking a longer view, we remain optimistic because we are working on various programs, including the recent win with the CH-53K and our collaboration on hypersonics with Spirit last year. There are additional projects that we haven't discussed yet, so overall, we are hopeful about the growth opportunities ahead.

Got it, makes sense. Then just one more, if I can, just on the AEC margins, obviously weaker in the quarter. You talked about the 20%, it sounded like some under-absorption on the joint strike fighter, and I guess presumably the write-down of some of the assets may have been in there. What’s it going to take specifically, I guess, in terms of programs and volume to drive those margins? Is it continued LEAP? It certainly doesn’t sound like 787 is going to be a contributor. Is it joint strike fighter ramping? What’s going to drive the EBITDA margin as we move through the year here?

Yes, Mike, if you examine the shortfall to the 20% level during the quarter, about half of it was due to the reserve we had to take on raw material and our work-in-progress related to that issue. That should not recur, which brings us back halfway just from its absence. The remainder, as you mentioned, was primarily due to the F-35 being particularly low this quarter. Our strategy does not rely on a significant recovery in programs beyond what we are currently experiencing, so I do not believe that returning to a 20% EBITDA requires any extraordinary efforts. While I understand that for the team in the operating segment, each day feels like a significant challenge, I believe we have a solid path to achieve this. Although it's not effortless, there is a credible route to deliver this without making overly ambitious assumptions about demand beyond the market trends we are already seeing.

Got it, got it. Makes sense, thanks guys. I’ll jump back in the queue.

Thanks, Mike.

As a reminder, ladies and gentlemen, if you do have questions, press one then zero on your touchtone phone at this time. We’ll go next to the line of Pete Skibitski with Alembic Global for a follow-up question.

Yes, I have just one follow-up question. With the current defense budget and an improved outlook, I would like your updated thoughts on missiles in general, and specifically hypersonic missiles. I understand there has been industry-wide testing, but how soon should we anticipate that the hypersonic missile category could contribute to your growth story, beyond JASSM?

We’ve got a ways to go still on that. I probably could give more color on that towards the end of the year, into next year. It’s a development program right now, so.

Look, without saying anything we can’t say publicly out there, there are companies talking about testing plans over the next 24 months, let’s say, 18 to 24 months. I would not expect material revenue for us before that time period, but hopefully some programs will go into production where certainly toward the middle of the decade we could see some meaningful revenue.

I understand it's a sensitive area, and I was just curious if visibility has improved since we have a better budget outlook. Thank you for the information.

Thanks.

Speakers, we have no one else in queue at this time.

All right, well I’d like to thank everyone for joining us on the call today. We are holding an investor day May 25 in Boston. If you’d like to register to attend the in-person event, please feel free to reach out to John Hobbs, our Director of Investor Relations. As always, we appreciate your continued interest in Albany International. Thank you and have a good day.

Ladies and gentlemen, the replay for this conference call will be available on the Albany International website. That will conclude your conference call for today. Thank you for your participation and for using AT&T event teleconferencing. You may now disconnect.