Ladies and gentlemen, thank you for standing-by. Welcome to the fourth quarter earnings call of Albany International. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. At the request of Albany International, this conference call on Tuesday, February 10, 2015, will be webcast and recorded. I would now like to turn the conference over to Chief Financial Officer and Treasurer, John Cozzolino, for introductory comments. Please go ahead.

Thank you, operator and good morning everyone. As a reminder for those listening on the call, please refer to our detailed press release issued last night regarding our quarterly financial results, with particular reference to the Safe Harbor notice contained in the text of the release about our forward-looking statements and the use of certain non-GAAP financial measures and associated reconciliation of GAAP. And for purposes of this conference call, those same statements also apply to our verbal remarks this morning. And for a full discussion, please refer to that earnings release, as well as our SEC filings, including our 10-K. Now, I will turn the call over to Joe Morone, our Chief Executive Officer, who will provide some opening remarks. Joe?

Thanks, John. Good morning, everyone and welcome to our Q4 2014 call. As usual, I will begin pen with a summary of the quarter and then John going through the slides, will go into more detail. I will then follow with our outlook and then we will turn to your questions. As we described in the release, this was a solid quarter for Albany. Both businesses performed well. Sales grew by close to 4% excluding currency effects, adjusted EBITDA grew by 8%, total debt declined by $11 million and by the end of the quarter our U.S. pension obligation was essentially fully funded. Despite the volatility in currency in oil markets there really weren't any surprises this quarter. In machine clothing, sales in each major region were close to expectation and consistent with recent trends. As John will discuss, gross margins improved. Despite the improvement, adjusted EBITDA was flat on a year-over-year basis, because of increased R&D spending. In fact for the full year, the difference between 2013 and 2014 adjusted EBITDA on machine clothing is primarily due to increased R&D spend in 2014. That increase, together with an investment of nearly a third of total machine clothing CapEx for 2014, that increase reflects an accelerating effort and momentum associated with our new technology platform. In AEC as expected, sales jumped to over $30 million for the quarter and $90 million for the full-year as we released to Safran the first wave of parts manufactured in our second LEAP plant, which is in Commercy, France. Meanwhile preparations for the LEAP ramp intensified at both plants. Development of the GE9X fan case advanced on schedule. Our Boerne, Texas operation continued to perform well and research and technology continued its advance across the spectrum of new engine, airframe and automotive applications. As we mentioned in the release, to support our exploration of applications in the automotive market, we have now signed a joint development agreement with Ricardo, a United Kingdom-based engineering company with strong relations in the automotive industry. So it is a good quarter with no surprises. Both businesses performed well and remained firmly on track toward their long-term objectives. Now as I mentioned for more detail on the quarter is John.

Thank you, Joe. I like to refer you to our Q4 financial performance slides. Starting with slide three, net sales by segment. Total net sales, in Q4 increased 3.7% excluding the effects of currency rate changes. On the same basis, MC net sales declined 1%, while AEC net sales increased 38.4%. As expected, AEC sales in Q4 increased to a level higher than we would expect for quarter in 2015 as the company recognized additional revenue related to the startup of the new LEAP plant in Commercy, France. The company gross margin percent, as shown on slide four, was down slightly to 38% in Q4 compared to 38.2% in Q4 of last year, as a higher portion of sales came from AEC. MC gross margin improved to 43% in the current quarter, compared to 41.7% in the same period last year. For the full-year, MC gross margin was 43.1% in 2014 compared to 42.8% in 2013. As discussed in the past, the average gross margin percent over the first half of the year tends to be higher than the average margin over the second half of the year. Turning to slide five, earnings per share. We reported net income attributable to the company in Q4 of $0.25 per share compared to $0.27 per share in the fourth quarter last year. Foreign currency revaluation gains and losses resulting primarily from the revaluation of nonfunctional currency, cash balances, accounts receivable and intercompany assets and liabilities, once again have significant impact on the year-over-year comparison as Q4 2014 EPS includes income of $0.10 per share for revaluation, compared to a loss of $0.03 per share in Q4 2013. During Q4 2014, the company recorded a pension settlement charge of $0.16 per share related to the completion of the previously disclosed U.S. pension plan…

Thanks, John. So turning briefly to our outlook. As we discussed in the release on the surface, we expect 2015 to be similar to 2014 assuming macroeconomic conditions hold steady. We currently expect machine clothing adjusted EBITDA in 2015 to be comparable to 2014 and 2015 AEC sales to be 5% to 10% ahead of 2014 sales. But beneath the surface, 2015 will be an important year for both businesses. The overwhelming priority for AEC will be preparing for that ramp-up of the LEAP engine, which begins in earnest in the backend of 2016. At the same time, we should learn a great deal more during 2015 about AEC's growth potential beyond the fan blades and cases that we are making for the first versions of the LEAP engine. In machine clothing, the key to 2015, as it is every year, will be to offset the structural erosion in the publication grades and the ever present price pressures, with productivity gains and growth in our strategic markets. But as with AEC, 2015 will also be an important year in machine clothing for learning about new technology. We plan to run several preliminary but important field trials of our new technology platform over the course of the year. So to summarize, this was a good quarter, in line with our expectations and with no real surprises. And while our outlook for 2015 is for comparable performance to 2014, we think the year ahead will be a pivotal one for the long-term prospects of both our businesses. And with that, let's go to your questions. Operator?

[Operator Instructions]. And first from the line of Jason Ursaner with CJS Securities. Please go ahead.

Good morning.

Hi, Jay. Congratulations, by the way.

Well, congratulations to Arnie, but well we could talk about that more offline. But in the machine clothing business, just excluding the currency impact, revenue was still down slightly year-to-year. Commentary was that it was generally in line though with internal expectations. Just looking back, last year Q4, I think, you had been a little disappointed with the revenue trends because of North America packaging grade. So I am just wondering, shouldn't this have been more of an easy comparable period?

It should have been if South America hadn't taken a dive on us, the South American economy. So you are right. If you go back to Q4 of last year, we were pretty concerned about softness in the containerboard market, although by December, I think we mentioned by December, we were starting to see a rebound. But that was a rough -- Q4 2013 was a rough quarter for our most important market, which is containerboard in the Americas. This year, Q4 2014, that market was healthy. It was where we wanted it to be. No surprises there. But South America continued to be soft. You go back a year ago and South America was really strong. So we would have seen better year-over-year were not for South America.

Okay and longer term, the thesis there, I think, it had been to sort of hold or maybe even slightly grow revenue long-term with paper consumption in order to hold EBITDA and outpace inflation and now it seems to be changing a little to holding EBITDA and cash flow somewhat regardless of revenue. So I am just wondering if I am reading that right? And why from a topline perspective, why maybe that's changed a little bit?

No. I don't think it's changed, Jay. I think the way to think of it is, if you look at volume, long-term prospects for volume, that basic thesis holds that growth, incremental GNP driven growth in packaging and in tissue and in South America should be sufficient to offset decline in the publication grades in North America, given our overexposure to those growth grades. And likewise, we continue to, everything we see says, from a volume perspective, growth in Asia should be sufficient to offset structural decline in Europe. Now the wildcard has always been, continues to be, pricing pressures plus inflation and that's where the productivity comes in. So we haven't seen anything to really change that basic model that Europe and Asia hedge and the growth segments including South America long-term in the Americas hedge against that publication grades. And 2015 will be one of the reason that we mentioned in the release startups in strategic markets in 2015, is we haven't really seen very many machine startups in those strategic markets over the last couple of years. We have seen a lot of new machine startups in Asia and China in particular before that. 2015 looks like the first year in a while where we start to see some of that machine startup activity, which helps to drive some of that incremental growth in the growth segments that offsets the hit to the topline for publication. So that's why we mentioned startups in the release.

Okay and gross margin in that segment was very strong. Just wondering maybe thoughts on sustainability and seasonality and if you have seen any benefit yet of if you expect to see any benefit from lower oil prices in your resin costs?

We don't see any reason to change our general review that gross margins are on average little bit higher than the first half than in the second and over the course of the year in the 43%-ish range is still the right range. Now we have been really very successful at offsetting the impact of oil price increases when inflation had been strong on the oil side. So we can't really expect to now, when it is dropping down, squeeze our suppliers. So we would expect a less gain on the down side and that's the trade-off for not getting as much upward pressure when oil prices were growing or increasing.

Okay and just last question for me. Obviously I have a lot of questions about the Ricardo JV, but maybe just what else is there that you can add in terms of maybe potential size, timing or exclusivity?

It's more of a joint development agreement than it is a JV, in the sense that we are committed to going to build a plant and produce parts. We are jointly, for the next few years, going to explore, define and try to pursue initial applications, as I said before, in the high-end of the automotive markets. So it's a very deliberate attempt. We are looking at three or four kinds of parts that could be used on the chassis of the high-end of the automotive market and they have are got the design know-how and experience plus the end-user contacts. We have got the technology. So it's less try together to go explore that market. Could it turn into something more? It could. But right now it's less see if we can get some initial applications going.

Okay. Great. I will jump back in the queue. Thanks, Joe.

Next we go to John Franzreb with Sidoti & Co. Please go ahead.

Good morning, Joe and John.

Hi, John.

You having the snow up there? I was just wondering if you could provide a little bit more color on your new technology platform in PMC?

Well, you know, as you can tell from the comments, we are feeling encouraged by the experience over the last couple of years on this thing. So let me just -- we have been working on this. Let me step back at it. We have been working on this for eight years now, nine years. And it has all of the attributes and all of the uncertainties of a classically disruptive technology. And the way disruptive technologies penetrate into the market, if they succeed, is in one of those, I hate to use the term again, one of S-curves where you have slow growth in niche applications over the first few years and then you find the killer app and you get a big increase in sales and then it eventually flattens off. And that's how you get that S-shape. We have found, we are starting to see success in those initial niche applications. We are actually, in the niche applications, are high-performance ends of the tissue market and the nonwovens markets. And we are actually feeling capacity pressure. We are running out of capacity and so we are adding capacity to serve in those initial niche markets. We are seeing very promising performance characteristics. Whether this will become something that really starts penetrating into the core of our business, so we start climbing up the steep part of the S-curve, or it remains a niche play is the remaining question. And that's the question that we will begin to test this year with some preliminary trials in some of the more significant segments of our market. Now if it goes well, what we will find with trials this year is at best partial success. They will run on for a while on a real machine and then will run into some problems. And so that's the best you can hope for in one of these early phase disruptive technologies is, you get it out in the field, you try it and you learn and you hope you have a partial success and you live another day to improve the thing and to try it again. Another key to this is finding customers who are willing to serve as lead users who are intrigued enough and interested enough to work with us on some initial trials and as I reiterated prove. And we do have found some customers who are in fact willing to carry this journey with us. So we are encouraged. We are adding capacity. We put one of our most senior seasoned people in the company in charge of trying to develop this technology realistically and so we will learn a lot this year from those additional trials.

Okay and sticking with PMC. The machine startups, where geographically are they taking place?

All of our strategic markets. So even in North America we are seeing some startups on tissue and in containerboard there are some restarts. In South America, there are some large pulp machines that are starting up and of course in China there are a few startups on the packaging side.

Okay and moving over to AEC. Could you just capsulize [ph] your non-aerospace opportunity that you are exploring, in additions to the ones you mentioned in last night's press release? Just kind of give like a summation of where we stand?

Non-aerospace?

Correct.

Two years ago, with third-party help, we did a study of the diversification potential outside of commercial and defense aerospace. And what we learned is there are applications everywhere for our technology. Essentially anywhere where you have a need for lightweight loadbearing structures. That's the potential application for us. So anything from boats and sailing vessels to bridges and buildings to town-well drilling applications, a variety of energy applications to the automotive market. What we found though, for all those applications, is the scale of the automotive market is orders of magnitude larger than anything else. And so we felt that rather than scatter our efforts that we ought to make, at least initially, a concerted effort to see if we could break into the automotive market. Now the two truths about the automotive market that are just overwhelmingly apparent. Number one, the demand for high strength lightweight, think impact resistant lightweight, in automotive is very high. It's everywhere. Every OEM and every Tier 1wants what they call lightweighting solutions. On the other hand, the price pressures. I think I have mentioned this before, the price points in the mainstream of the automotive market are very, very tough. They are actually below the cost of our raw material to us right now. So the pathway in that we have identified working with a partner, Ricardo, who really knows this market well, is start at the high-end. And the high-end is low-volume by automotive standards, but by aerospace standards, it's leap like volumes. It's high volumes. So we are going to dedicate two or three years and a strong team of people and whatever CapEx is necessary with the help of Ricardo to see if we can in fact break through at the high-end. So that's really the primary focus of our diversification efforts. If we start getting traction there over the next year or two or three years, then we will see whether it makes sense to double down our automotive or to start looking another one of many other potential applications outside of aero.

Now you had bantered names previously such as Maserati you were working with. Is that no longer part of what you are doing?

We had never mentioned a specific company that we are working with. We try to use examples of high-end, high performance OEMs that we think would be reasonable targets with our own strategy. And so we are talking to some of them with Ricardo as we speak and we will see if they turn into an opportunity to participate on one of their new platforms. I think we will learn a lot this year or next year.

Okay and against that backdrop, how should we be thinking about R&D spend in 2015 relative to 2014?

You can take the run rate of the second half of the year, this year in AEC. That's should be the run rate for the full-year in 2015. And then it should just incrementally increase from there. As a percent of sales though, it will decrease, because sales will grow so fast, but we should, based on the breadth and depth of opportunities we are seeing, I think you should assume that R&D spends go 2015 through the decade is going to go up by a number of million dollars a year. That might be a safe bet.

Okay. Thanks, Joe. I will get back into queue.

Our next question is from Steve Levenson with Stifel. Please go ahead.

Thanks. Good morning, Joe and John.

Good morning, Steve.

Sticking on the automotive side a little bit. Is the barrier to better market penetration related more to the cost of the fiber, the cost of manufacturing a part or the resin ores and a combination all three plus integrating it into current platforms?

Let's start at the high-end. At the high-end, the barrier initially is going to be demonstrating that this technology works in vehicular automotive applications. It's one thing to bring to them a fan blade and show them that fan blade will withstand a bird strike. It's another thing to bring to them a side impact beam and show them that that side impact beam will absorb comparable energy at much lower weight than a metallic side impact beam. So that's the first step is, proof, it's developing and providing the data and analysis that will convince that automotive OEM to take a leap and use this technology on one of their platforms and be the first to use it. Now once if and when that occurs, then we start accumulating relevant industry data, then the cost questions rise to the fore and how far down the pyramid toward higher volume applications you go, costs will become a much more important barrier. But first step is to demonstrate that the performance that we have been able to achieve an arrow is directly relevant to the kind of performance lightweight impact resistance that they are looking for in automotive. And that's where we are focusing on now.

Got it. Thank you. Then a question on the LEAP and it's really question of how you see the ramp. I know things to start till the very end of this year and it starts slow, but it should pick up pretty quickly and I don't know if you can suggest us as a percentage of capacity utilization where you are going to be this year? Where are you might be next year, if you are willing to say and when you think the plants will be running pretty much full-time?

Well, let's take this is steps, Steve. In our standard investor presentation which is on our website, we have a chart there with our best estimate for how revenue will ramp and if you assume you soon will run rate of around the low 50s in 2014 and then a 10% improvement in 2015. So now in the mid-50s. And then another 10% in 2016 so are in the low 60s. From there on, 2017, 2018 and 2019, that revenue should triple. So we should be in the 60% to 65% range in 2016. We should be in the 170% to 180% range in 2019 from LEAP. We tried to lay that out on a chart. Now that takes into a lot of variables. One is what CFM is saying about the number of engines they are going to produce. Second is our best estimates of our learning curve as our price per ship set comes down. And the third is our best estimate of the lag between when we produced and when they ship engines. So that's our best estimate, basically a tripling of revenue .Full-year 2016 compared to full-year 2019, you should see roughly a tripling of revenue.

Got it. Thank you very much.

[Operator Instructions]. And we will go to J.B. Groh with D.A. Davidson. Please go ahead.

Hi, guys. Thanks for taking my call. Just had really a couple left here. In looking at Ricardo, it looks like they touch a lot of other markets and obviously automotive is one of the biggest ones. But looking at the other markets that they are involved in, do you think there is opportunities there? And maybe you could just address that?

Yes. It's one of the appeals of working with them. The focus initially really is on targeting automotive. And they, if you read the information that they released about this agreement, you will see, they are feeling a lot of pressure and opportunity to come up with "lightweighting solutions" for their OEM clients. And we are that potential solution. So the prize really, you just can't overstate the magnitude of this market, if you can break in. So that's the prize and we will stay focused on that prize for a while. If we start turning to others, it means that we probably mean that we found that we are still a ways away from really breaking into that prize market. Either the performance wasn't there or more likely the cost constraints are too high. Then we will shift to other markets. But this is so big, that if you just get a tiny piece of it, you have got a big opportunity.

Right. Okay and could you talk maybe about the cadence of maybe RSP activity or inquiries on the aerospace side that, you have obviously landed a couple of nice wins there, but curious as to other parts that have potential or other programs that you are looking at that have potential?

Well, cadence is an interesting way of putting it. There is a lot of activity. Now whether the activity turns into opportunity, we will see. But we are actively working it.

So that pace is still pretty strong?

Yes. I hesitate because for the guys working on it, they might see strong is a little too big a word, who are out there on the road constantly. But we will see. You can't count the chickens until they are hatched. And we always, in every one of the opportunities we are going after, we have to displace an incumbent. So point number one is, the OEM we are working with needs to have a weight problem and have a motivation to move away from their incumbent. But we are working it on multiple fronts as we speak.

Okay and then John, I think we talked a little bit about R&D, but how is that going to allocated between the two segments, the same of mixes as we saw this year? Or is the machine clothing going to come down a little bit with new products?

So, J.B., just a reminder. We do have a charge in the earnings release. Table two gives you the R&D for the quarter for machine clothing and engineered composites. So Joe talked earlier about the increase in composites next year, where you could use basically the second half of the year run rate and maybe such incremental increases as we go forward, then add some going forward from there. And in machine clothing, you will see the number in there on the table. That's probably pretty close to the run rate going forward. Maybe a little heavy for the quarterly run rate next year, but it's pretty close. So that gives you a pretty good breakout place to start when you are modeling those numbers forward by segment. Good. Okay. Thank you very much.

And we have a follow-up Jason Ursaner. Please go ahead.

Thanks for taking follow-up, Joe. Just in talking about the trajectory in AEC and LEAP, you mentioned the two big assumptions with CFM production and the ship set cost. Just maybe looking at that second factor and going back to some commentary you said previously on operating margin for typical aerospace parts companies. Gross margin for AEC was 13.5%. Getting gross margin and operating margin up over the next couple of years, how much is fixed cost volume leverage versus needing to really get cost down through execution.

Well, it's an interesting question. First of all, it is something we talked about internally a fair amount. The gross margin in AEC can't be compared directly to gross margin in machine clothing, because the structures of those businesses are different. SG&A as a percent of sales is pretty high in machine clothing. It's going to be substantially lower in AEC. So what we have tried to, when we discussed this question that you are getting at, which is really about the profitability of AEC, we still think the right way to think about this is EBIT margins or EBITDA margins. And not get too caught up in the geography between gross and SG&A margins. And you have got to start with the premise that the way we view this is that the long-term growth business. So a lot of the upfront fixed cost investment is and pretty much has occurred. So if you start from 2014 as the baseline and start looking at impact of incremental revenue, most of that incremental revenue as we speak today will be from LEAP. It's reasonable to expect normal aircraft engine EBIT margins for that incremental revenue. Now ordinarily and that's in the 11% to 18% range, or 10% to 18% range, somewhere in the 14% to 15%.

And that's in ASC, not the overall segment?

That's ASC.

Okay.

And that's where the incremental revenue will be unless and until we start announcing more contracts, the incremental revenue. Now ordinarily you would expect some fixed cost leverage with that incremental revenue and if we were just doing LEAP, we would get some fixed cost leverage. You would get an additional point or two a bit of EBIT or EBITDA margin. But we are approaching this and we will keep managing this as a growth business. So we will keep investing in incremental R&D and there will be some incremental investment in engineering capabilities. So we won't the kind of fixed cost leverage as LEAP takes off that you would from a mature business. So that's why the best guidance that we can give you at this point is, start with that baseline of 2014 actual to incremental revenue this decade from LEAP, you should get in the normal EBIT margin or EBITDA margin range for an engine manufacturer or a Tier 1 engine supplier.

Okay and longer term, as you are talking about trying to replace incumbents, some of these incremental applications, how much do you see the competitive advantage in the capability and the weight of the woven deposits versus maybe some of your intellectual property on software and technical know-how for how to do it, not necessarily the technology itself?

Well, they are really tightly tied together. From the customer point of view, all they care about is weight and cost. And so we can have all the unique advantage around and proprietary advantage around 3-D weaving in the world, if it's not translating to material weight savings at an acceptable cost, it won't translate into incremental sales. So those are really tightly tied. Now we do believe that because of the unique properties of our 3-D woven structure that there is a broad potential for weight savings at acceptable cost and we believe that we have a broad and deep proprietary advantage in our ability to create that asset and we haven't yet hit the mega ramp, which is again something that the aerospace industry has never seen. So we think we have an advantage today in know-how and capability that will turn into a massive learning curve advantage by 2019. So whether that advantage turns into incremental sales is all about our ability to demonstrate, as I mentioned before, to OEMs that have a weight problem that we can solve their weight problem at acceptable cost.

Okay. Appreciate it. Thanks, Joe.

And we do have a follow-up from John Franzreb. Please go ahead

Yes. Joe, just that you called out new contract negotiations this year, just checking on that. Is it an unusually higher for large contract negotiations? And what's the timing of those this year?

The timing, it will affect -- the negotiations will affect 2016. They are unlikely to affect 2015. So let's get the timing out of the way. We have significant contract negotiations every year, but this year they are a little bit heavier than normal in every region of the world, in North America and Europe and in Asia. So what we have always told investors is, the risk for price lumpiness, the risk for price volatility and increases when there are larger volume of more important contract negotiations and the reason we called this out in our Q4 call was because toward the end of this year, we will see a higher than normal volume of those kinds of negotiations. Now the one hand, we always go into those negotiations with major customers with a bulls-eye on our back, because we have high share. On the other hand, we always go into those negotiations with a lot of confidence in the kind of value we deliver to our customers, both product and service and delivery and customer relations. So we are raising the raising the flag. The window is opening late this year. But on the other hand, were not, if you asked us today, what's the number one risk in this business in our outlook, it continues to be macroeconomic conditions.

Okay. Thank you for the color, Joe.

And with that, we have no further questions in queue.

All right. Thank you everyone for participating on this call and as always, we will look forward to catching up with you over the next few months out on the road and have a good few weeks. Thank you.