Albany International Corp. (AIN) Q4 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Albany International Fourth Quarter Earnings 2020 Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the conference over to John Hobbs, Director of Investor Relations. Please go ahead, sir.

Thank you, Brad, and good morning, everyone. Welcome to Albany International’s fourth quarter 2020 conference call. 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 notice, contained in the text of the release, about 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. Where we will make statements that are forward looking, containing a number of risks and uncertainties, among which, are the potential effects of the COVID-19 pandemic 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 February 10, 2021 as well as our SEC filings, including our 10-K. Now I'll turn the call over to Bill Higgins, President and Chief Executive Officer, who will provide some opening remarks. Bill?

Thanks, John. Good morning, and welcome everyone, and thank you for joining our fourth quarter earnings call. Let me provide highlights on our 2020 performance, share my expectations for 2021 and comment on our strategy going forward. And then Stephen will cover our fourth quarter results and guidance for 2021 in more depth. We finished the year strong with fourth quarter results much better than expected. We delivered another solid quarter in a pandemic year that was challenging and unpredictable. Our operations demonstrated agility and our relentless focus to deliver great bottom line results, despite pressure on the topline and downturns in some of the end markets that we serve, and this was our story throughout the year. Beginning in early 2020, we took swift action to ensure the safety and wellbeing of our employees. Our teams work tirelessly to reset our manufacturing and supply chains and many times during the year to meet our customer's needs as they changed. We did a great job for customers and continue to drive efficiency and productivity improvements. We took early action to manage our costs well, and consequently, we are able to deliver outstanding margins for our shareholders and generate solid free cash flow and add to our strong balance sheet. Also notable, our customer performance metrics are at record levels for service, on-time delivery and quality. Our safety performance ended the year as the best in the history of the company. Our factory productivity and supply chain initiatives contributed to our bottom line success. And we managed to launch a number of employee training and development initiatives. I am most proud of how our employees found ways to work safely and how they've innovated to not only do our work, but to improve how we do it. It's not an accident that we completed well over 100 lean kaizen improvement projects in 2020, despite the restraints of social distancing, working remote and following precautions for COVID-19. In December, we recognized these accomplishments by our employees, and we are pleased to award all of our employees around the world, excluding the executive team with $1,000 bonus of gratitude. As I said, I am proud of how our employees pulled together to support one another and work safely during this pandemic and continued to do a great job for customers. Now let me make a few comments about the outlook for this year and beyond. Our Machine Clothing segments end markets appear to be gaining strength. We exited last year with a solid order book, which bodes well for this year and beyond as the global economy improves. As a leader in machine clothing, we are well positioned to grow with our customers, especially in the higher growth areas, tissue and packaging. Our longstanding strategy of continuous investment in technology and product development along with our operating discipline has served us well during the worst market downturn in more than a decade. Consider this, in the middle of a global pandemic recession, our MC segment expanded its adjusted EBITDA margin by 170 basis points in 2020. And more impressive, since 2015, our MC segment has expanded its adjusted EBITDA margin by more than 500 basis points. We are also optimistic about our Engineered Composites segments future. Although it's longer-term since 2021, still pretends to face headwinds from the pandemic and the downturn in commercial aerospace and airline travel. Through 2021, we are planning for slower production on Sunlines and AEC because of excess inventory in our facilities and inventory and the supply chain of our customers, particularly for components for the Boeing 737 MAX, the 787 and to a lesser degree, the F-35. To continue managing our costs and because of the recent downward revision by Boeing for 787 demand, we just yesterday implemented a reduction in our Salt Lake City workforce where we produced 787 frames. While 2021 is expected to be slower because of inventory destocking, we expect growth in engineered composites to resume longer-term. We are well positioned in both military and commercial markets with solid programs, such as the CH-53K, the JASSM missile, the F-35 and LEAP. And our position on LEAP engines with Safran should see early growth in the recovery since narrow-body aircraft, which the LEAP engine powers are expected to lead commercial aerospace out of the recession as domestic air travel is expected to recover first. Next, let me say a few words about our strategy. Albany International is a 125-year history of innovation and developing new materials that add value for our customers. We are committed to continuing this legacy with a focus on developing the next-generation of engineered materials and advanced composites to help our customers improve their products and production processes. Our Machine Clothing segment is the leader in PMC because it offers a full range of the most advanced material belt used on paper machines, which operate at high speeds in a severe environment. We've earned a reputation for constantly improving our belts technology, durability and performance. And because of our advancements, our customers are able to produce higher quality paper products reliably at lower – overall cost of production under demanding conditions. This is a technology intensive collaborative partnership that our customers value. In our Engineered Composites segment, we continue to advance the state-of-the-art in advanced composites, including our proprietary 3D-woven composite material using the LEAP engine fan blades and fan cases. In 2020, despite the pandemic, we work closely with Safran to continue improving our 3D-woven composite materials and to reduce our cost of manufacturing them. So as commercial aerospace rebounds will be even more competitive. We also expanded our collaboration with new customers and for new applications to diversify our customer base and develop future growth areas. Our technology development on the Wing of Tomorrow program with Airbus has continued through the pandemic. While this program is longer term, it's imperative that we get an early seat at the table and bring our technologies to design the next-generation of aircraft. In the medium and near-term, we have other ongoing R&D development efforts, what I call incubator projects in both military and commercial areas. For example, our R&D team is supporting a major prime OEM in the development of next-generation hypersonic materials and structures using our proprietary 3D-woven composite materials. We also have projects in unmanned vehicles, higher temperature materials and thermoplastics. We believe the current downturn in commercial aerospace is transitory, and that market forces in the long-term will drive energy efficiency and ongoing replacement of metallic components with lighter composites. This trend will gain an importance as the industry seeks to reduce its environmental impact with the next-generation of more efficient aircraft. Our 3D-woven composite technology is commercially proven, can meet the need for lighter weight and high strength and we intend to grow our participation in the most demanding structural applications in aerospace. As a company, we remain committed to investing in technology and product development of advanced materials for organic growth. In fact, we are increasing our R&D budgets in both segments in 2021. And this is a critical part of our capital allocation strategy. Organic growth has been driven by not only our investment in hard capital, such as new products, tooling and production equipment, but also by our investment in intellectual capital, the expertise, the time and effort that are necessary for successfully developing new products and process know-how over time. We are disciplined in how we invest in the criteria we use to measure success. We guide our capital investment decisions based on expected returns to shareholders, and we direct capital to those programs with the best risk adjusted returns. In summary, we are optimistic about the future. We have a solid balance sheet and strong free cash flow generation, which enables continued investment to grow. So with that, I'll hand it over to Stephen.

Thank you, Bill. Good morning to everyone. I will talk first about the results for the quarter and then about our initial outlook for our business in the coming year. For the fourth quarter, total company net sales were $226.9 million, a decrease of 12% compared to the $257.7 million delivered in the same quarter last year. Adjusting for currency translation effects, net sales declined by 13.6% year-over-year in the quarter. In Machine Clothing, also adjusting for currency translation effects, net sales were down 6.6% year-over-year, driven by declines across most major grades of product, partially offset by growth in engineered fabrics. Once again, the most significant decline of over 21% on a constant currency basis was in publication grades, which represented about 17% of our MC sales in the quarter. However, we do see signs with generally improving machine clothing market. First, while we did see year-over-year declines in packaging and tissue grades in the quarter driven by the same factors that we discussed on our third quarter call, the year-over-year declines we saw in those grades in the fourth quarter were considerably smaller than we had seen in the third quarter. Second, segment net sales in the fourth quarter were sequentially higher than the third quarter and modestly exceeded our expectations. Engineered composites net sales, again, after adjusting for currency translation effects declined by 23.5% compared to last year, primarily caused by significant reductions in LEAP and Boeing 787 program revenue, partially offset by growth on the F-35 and CH-53K platforms. During the quarter, the ASC LEAP program generated revenue of a little under $25 million compared to $48 million in the same quarter last year. However, this quarters ASC LEAP revenue was up significantly on a sequential basis, 48% higher than the third quarter, driven by the fact that all three of our ASC LEAP facilities were operational for the full fourth quarter. Fourth quarter gross profit for the company was $91.3 million, a reduction of 5.5% from the comparable period last year. The overall gross margin increased by 280 basis points from 37.5% to 40.3% of net sales. Within the MC segment, gross margin improved from 50.2% to 50.9% of net sales driven by favorable foreign currency exchange rates, increased efficiencies and product mix. AEC gross margin improved from 19.6% to 21.7% of net sales driven primarily by a favorable mix in program revenues, partially offset by a lower net favorable change in the profitability of long-term contracts. While we did recognize the net favorable change in the estimated profitability of long-term contracts for this quarter of about $500,000, this compares to a $3.3 million improvement recognized in the fourth quarter of 2019. Fourth quarter selling, technical, general and research expenses increased from $51.3 million in the prior year quarter to $54.8 million in the current quarter, and increased as a percentage of net sales from 19.9% to 24.1%. The increase in the amount of the expense was driven primarily by higher incentive compensation expense and an increase in foreign currency revaluation losses from $1.4 million in Q4 of 2019 to $3 million this quarter. These items were partially offset by lower travel expenses in the fourth quarter of 2020 compared to the same period in 2019. I would like to note that the higher incentive compensation expense that we recorded in both the third and fourth quarters of 2020 included accruals at corporate, totaling $3.9 million across both quarters combined for the special $1,000 employee bonus that Bill referenced. Total operating income for the company was $35 million down from $43.6 million in the prior year quarter. Machine clothing operating income decreased by $4.9 million caused by lower gross profit, higher STG&R expense and higher restructuring expense, while AEC operating income fell by $2.1 million caused by lower gross profit and higher STG&R expense partially offset by lower restructuring expense. Other income and expense in the quarter netted to about income of $490,000 compared to an expense of about $350,000 in the same period last year. The improvement was driven primarily by a more beneficial foreign currency revaluation effect in the quarter. The income tax rate for this quarter was 13.5% compared to 24.8% in the prior year quarter. As a result of a foreign currency revaluation gain at an entity where no tax provision is required, the tax rate associated with our adjusted EPS is somewhat higher at 17.8%. That 17.8% tax rate is significantly lower than the tax rate for the full-year. In 2020 as a whole, our tax rate excluding discrete items was 28.4%, which compares to 28% excluding discrete items for 2019 as a whole. The lower rate this quarter due mainly to a true-up of earlier quarter’s provisions increased adjusted EPS by $0.12 this quarter. Had we known the final full-year rate earlier in the year that $0.12 would have been recognized as additional adjusted EPS in those earlier quarters. Net income attributable to the company for the quarter was 27.5%, a reduction of 5.5% from $29.1 million last year. The reduction was primarily driven by the lower operating income, partially offset by the lower tax rate and improved other income and expense. Earnings per share was $0.85 in this quarter compared to $0.90 last year. After adjusting for the impact of foreign currency revaluation gains and losses, restructuring expenses, pension curtailment charges and expenses associated with the CirComp acquisition and integration, adjusted earnings per share was $0.89 this quarter compared to $0.97 last year. Adjusted EBITDA fell 10.4% to $57.3 million for the most recent quarter compared to the same period last year. Machine clothing adjusted EBITDA was $50.9 million or 35.3% of net sales this year down from $52.8 million or 35.1% of net sales in the prior year quarter. AEC adjusted EBITDA was $21.3 million or 25.7% of net sales down from last year’s $24.2 million or 22.6% of net sales. Turning to our balance sheet. Net debt declined by about $46 million during the fourth quarter. As a result, our absolute leverage ratio declined from 0.89 at the end of Q3 to 0.74 at the end of Q4. The reduction in net debt was principally caused by strong operating cash flow generation in the Machine Clothing segment and lower capital expenditures during the quarter, due principally to reduction of capital expenditures on the LEAP program. I would now like to turn towards the coming year by comparing it to 2020 and by providing our resulting initial financial guidance for 2021. We expect to deliver another year of strong performance in the Machine Clothing segments. For the full-year 2020, we delivered net sales of about $573 million down 5% from about $601 million in 2019. Orders in the fourth quarter of 2020 were up about 6% compared to the fourth quarter of 2019. This was a marked change from the first three quarters of the year when cumulative orders in this segment had been down compared to the same period in 2019. This gives us some comfort as we head into 2021. In particular, we do expect that sales in Q1 of 2021 will be up compared to the relatively low level of sales delivered in Q1 of 2020. We are providing initial net sales guidance for the segment of $570 million to $590 million. From a profitability perspective, machine clothing had a very strong year in 2020, delivering $216 million of adjusted EBITDA. However, there are three effects that will make it hard to replicate those results in 2021. First, as we have previously disclosed, we benefited from very favorable foreign exchange rates in 2020, particularly with respect to the weakness of the Brazilian real and Mexican peso, both of which are currencies in which we are short and that we have more expenses than revenues in both. Overall net favorable foreign exchange rates contributed over $6 million of adjusted EBITDA in 2020 compared to the prevailing foreign exchange rates in 2019. However, some of those favorable effects had dissipated by the end of the year. For example, the Mexican peso had weakened from under 20 pesos per U.S. dollar in Q1 of 2020 to almost 25 pesos per dollar in Q2. But by the end of the year, the rate was back under 20 pesos. Second, in 2020 due to the COVID-19 pandemic, we incurred significantly lower level of travel expense in the segment than in prior years. While this help the bottom line to the tune of about $6 million, this was not ideal from a business perspective as we depend on strong customer relationships to develop insight into customer needs and to drive product development and support. We are expecting to resume our prior level of travel during 2021, although in Q1, travel will likely continue to suffer from some COVID effects. Third, we continue to see pressure on input costs, particularly right now with respect to logistics, where sea, rail and air freight costs are all considerably higher than they were 12 months ago. In a typical year, we see over $4 million of input cost pressure and there was reason to believe that in 2021, this could be higher. While as is typical, we believe that we will be unlikely to be able to recover all of that increased costs through pricing increases, we will, of course, work to implement cost improvement initiatives to offset as much of the remainder as possible. Not withstanding these three pressures on profitability, we expect the Machine Clothing segment to deliver another strong year of profit performance and are providing initial adjusted EBITDA guidance for the segment of $195 million to $205 million. Turning to Engineered Composites. 2020 was a challenging year for the segment from a revenue perspective. Overall, revenue in the segment declined by about $125 million in 2020 compared to 2019, driven principally by lower sales on LEAP, 787 and other commercial programs offset by growth in military programs. Unfortunately in 2021, we are going to see a continuation of some of the same trends with 2021 shaping up to be a year of finished goods inventory destocking across our customer supply chains. On the ASC LEAP program, we expect to continue to produce components for the LEAP-1B variant, which powers the 737 MAX at very low levels. While the 737 MAX is now reentering service, there was considerable finished goods inventory in the channel at Boeing, at Safran and in our own facilities on which we have already recognized revenue as we recognized revenue at the time of production not delivery. In 2021, we currently expect to make components for fewer then 150 LEAP-1B engines far below the 1,000 plus engine shipsets we would expect to deliver annually in the long-term. On LEAP-1A, there was a much lower level of finished goods inventory in the channel, and we expect to produce components for well over 500 engine shipsets in 2021. Overall, while the total number of ASC LEAP engine shipsets produced in 2021 is expected to be somewhat higher than that produced in 2020. This is offset by the absence of certain recoverable non-recurring expenses that were recognized as revenue in 2020, resulting in roughly flat revenues for ASC from 2020 to 2021. Our next largest commercial program to produce frames for the Boeing 787 also has finished goods inventory destocking challenges. In 2020, we had already seen some effect from Boeing's decision to reduce the 787 build rate and our revenues from the program in 2020 were down over 20% from 2019. However, as Boeing reduced the 787 build rate further, there has been an increased buildup of our finished goods in Boeing supply chain, resulting in drastic reductions in order quantities for delivery in 2021. In addition, we expect our startup of production of the 787 fuselage frames will now shift from late 2021 into mid-2022 as it will take longer to consume the parts already in the supply chain that were produced by the previous supplier. Overall in 2021, we expect our revenues on the 787 frames program to be $30 million to $35 million lower than we recognized in 2020. On the military side, we support the Lockheed Martin F-35 through several contracts for different parts, including wing skins, edge seals and engine components at both our Salt Lake City and Burney locations. F-35 has been and remains a very important platform for us. In 2020, we recognized over $85 million of revenue on the platform overall up more than 25% from what was recognized in 2019. However, during 2020, Lockheed Martin finished F-35s at a rate lower than they had originally predicted due to supply chain issues caused by the pandemic and consumed fewer sustainment parts. As a result, during 2020, there was a buildup of our finished goods in the F-35 supply chain. The situation that we expect will reverse itself in 2021. This year to rebalance the supply chain, we expect that our build rate will be lower than the rate at which Lockheed Martin is completing aircraft. We now expect our F-35 revenues in 2021 to be more than $15 million lower than we recognized in 2020. We see similar patterns in several smaller commercial programs across the segment where the revenue on those programs in 2021 will be close to $15 million lower than recognized in 2020. All of these reductions will be offset by growth on other programs, most notably on the CH-53K. Overall for the Engineered Composites segment, we are providing initial guidance for net sales of $275 million to $295 million. Turning to the Engineered Composites segment profitability. 2020 was a strong year with adjusted EBITDA margins of over 26%, largely enabled by three factors. One, strong operating performance in the period as evidenced by about $10 million in net favorable adjustment to long-term contract profitability. Two, sales mix benefit. As the majority of the revenue declined from 2019 to 2020 was on the ASC LEAP program, which is lower than average profit margin. And three, despite the decline in revenue, there was limited loss of fixed cost absorption as the cost plus nature of the ASC LEAP program allowed us to still recover all of the fixed costs of operating our three ASC facilities. Unfortunately, those factors will not help us again in 2021. First, the lower revenue in 2021 at our non-ASC facilities, most notably our Salt Lake City operation, where all of our 787 work and the bulk of our F-35 work has performed will create upward pressure on planned overhead rates. While as Bill mentioned, we have announced a workforce reduction at our Salt Lake City facility. That alone will not offset these rate pressures. In such an environment, it will be difficult for us to achieve the lower unit production costs required to deliver significant improvements to long-term contract profitability. This is a change from the past few years when the growing revenue base at our non-ASC facilities created the tailwind to long-term contract to profitability. Second, in 2021, we will see a product mix shift as roughly $40 million to $50 million revenue decline we expect this year is on fixed price programs, which have a higher than average profit margin. And third, unlike 2020, we will suffer from a loss of fixed cost absorption due to the fixed price nature of the programs with declining revenues. As a result, the decremental margins will be much larger than the average margins on those programs. In fact, it is not atypical for our fixed price programs to have EBITDA contribution margins in the 30% to 40% range. As a result of the impact of those three factors in 2021, not only do we expect the topline reduction I discussed earlier, but we also expect the EBITDA margins for the segments to fall from the 26.1% level delivered in 2020 into the low-20s. Therefore, we are providing initial 2021 guidance for engineered composites adjusted EBITDA of $55 million to $65 million. At the total company level, we are providing initial 2021 guidance as follows: revenue of between $850 million and $890 million, effective income tax rate of 28% to 30%, depreciation and amortization of between $70 million and $75 million, capital expenditures in the range of $50 million to $60 million, GAAP and adjusted earnings per share of between $2.40 and $2.80, and adjusted EBITDA of between $195 million and $220 million. While we are not providing explicit cash flow guidance for 2021, we do expect that the free cash flow we generate in 2021 will be well above to roughly $100 million generated in 2020. I would also like to note that in 2021, we expect R&D expenses to be more than 25% higher than they were in 2020, reflecting the ongoing investments in both segments that Bill referenced earlier. Returning to the present, we are very pleased with how the company performed in 2020 overall. Despite the challenging operating environments, both segments met our customer's needs and delivered outstanding performance all while maintaining a safe working environment. While it does appear that we have one more year of channel destocking ahead of us before we returned to growth in the Engineered Composites segment, we remain very excited about the future prospects for both segments. With that, I would like to open the call for questions. Brad?

[Operator Instructions] Our first question today comes from the line of Peter Arment with Baird. Please go ahead, sir.

Yes. Good morning, Bill and Stephen. Congrats on the strong results given the challenging year. I guess, I wanted to just first touch base Stephen on – the AEC revenue guidance kind of implies, I guess if I look at the midpoint of revenues around $71 million a quarter, which I – and I know that's probably not how it's going to play out. But maybe if you could just walk us through how you think the revenue cadence maybe a high level given all the moving pieces around destocking?

So yes, look, I'm not going to get into quarterly guidance. We don't provide quarterly guidance. Although, I don't expect it to be terribly lumpy as we go through the year. So not given the quarterly guidance, you suggested just dividing the midpoint by four, but you're probably not that far off. So your general approach is nominally correct. Look, the challenge we face is, while ASC revenues will certainly be fairly flat, they were more lumpy in 2019. So those will be spread more evenly throughout the quarters, which should mean that for ASC, no quarter is as bad as the worst quarter we saw in 2019. However, we have to layer on top of that at 787 and F-35 decline than the other smaller commercial programs. The effect of which will be spread throughout the year. In 787 and F-35 in both, there was considerable inventory in the channel that needs to be cleared out before we can start to produce and recognize revenue. And it's not as – that means, we will take a holiday from production in Q1. That decline in production will be spread throughout the year. So we'll be producing a little ahead of the need in some ways, if you'd like to think in the first half of the year and be catching up – they'll be catching up the business as we get into back half of the year. So we have somewhat level loaded those production quantities throughout the year as well. Bill, I don't know if you have other thoughts on that.

I would just add. I think the programs that are where we're destocking through the year, we’re projecting and planning for a low level of production. We'll probably see some pickup in the back half of the year, and we have other growth programs, like CH-53K as the volume longer-term grows and maybe a little bit more in the back half of the year as we go into 2022 and expect to get beyond destocking and then grow from there. So there'll be probably a little bit more in the back half of the year. But as Stephen said, I don't think it will be real lumpy.

Okay. That's really helpful. And then just around just the sensitivity of the EPS range on adjusted EPS that you provided, I think we struggle a little bit of what it's some of the factors that maybe we're not thinking about that implied you getting to the lower end of your range. I mean, could you maybe walk us through, maybe some assumptions there that you’re thinking about?

Well, it's derived from the lower end of our EBITDA range for the two segments. There's obviously the table in the earnings release that shows how we get from our adjusted EBITDA range to our EPS range. So assuming the questions is really at the adjusted EBITDA range, look, from an AEC perspective, we mentioned the headwinds we face now on our long-term contract profitability with the declining volumes placing upward pressure in rates. That's something we're going to have to manage very carefully through the year. It certainly generates the risk that you could actually have adjustments to long-term contract, which would be unfavorable. We obviously are not planning on that, but there's certainly a risk there. So that's one of the biggest risks on the AEC side. On the Machine Clothing side, there's certainly FX risk, which could push us towards the bottom end. There's inflation on the input costs, I talked about, which we always try to offset with cost reduction initiatives given we are unable given the competitive environment to raise prices to completely offset those rising input costs. We try to identify cost savings initiatives to offset those increases, but there's no guarantee as we entered the year that we'll be successful in offsetting all of those. And there's also a bit of a mix issue of just exactly where the spread is going to come as we go through the year for machine clothing, as we've discussed previously, but certainly regional differences in margin, and even some margin differences between grades of product. So there's certainly a product mix risk, which could drive us towards the lower end of the range as well.

Okay. And just lastly – thank you for that, Stephen. And then just lastly, Bill, maybe just your thoughts on – you guys are generating a lot of cash and you've got a really strong balance sheet. Just thoughts on how you're thinking about M&A in this environment just given the pandemic? Thanks.

Yes. Sure, Peter. We are generating great free cash flow and paying down debt. And our primary objective, as I said, is going to be the organic growth investment we make and the programs we're working on. But we will consider M&A. We're particularly interested in things that would help us advance our technology, our processes and the product development around engineered materials and advanced composites. So it is something that we would consider if the right property came along, we've been fairly conservative in nature and prices have been high over the past year. So we'll keep looking. But if the right property came along, we would consider it.

Thanks very much.

And we do have a question from the line of Gautam Khanna with Cowen and Company. Please go ahead.

Yes. Hey guys. Good morning. This is Dan on for Gautam. So listen, I wanted to ask a little bit more detail on the F-35 destock and just kind of the puts and takes behind that and how long that could last. And I guess kind of like what rates were you producing at versus what they delivered this year? And I mean there's still a pretty substantial ramp in deliveries through 2022, so kind of just how you expect that to play out? Thanks.

Hey, Dan. This is Bill. I think that maybe the first part of the question Stephen could add some color to it. We're expecting this – we'll work this through this year in 2021. The program for us, the F-35 program is a great program, it's been growing quickly. We've been – we added production capability and grew with it. And just came to find out somewhat of a surprise at the end of the year that there was inventory in the channel that we're getting ahead of the overall rate what Lockheed Martin was looking at. So it's a short-term revision to the growth rates longer-term. So I think in 2022, we'll be back at a healthy growth rate on the program.

Okay. Got it. I guess as a follow-up to that, is it kind of like that that's a pretty big snapback, if say, Lockheed goes to delivering 170 at 2022. Then that's a pretty big step up, right, for you guys? Or is it already that all of that inventory is in the channel?

I think, it is a step back. I don't know that I would describe it as a snapback. We'll manage it over time, so that it's a well-managed operational increase. But yes, we do expect it to come back beyond 2021. And as I said, it's a good program.

Okay. Cool. And then just on the – you guys have the Safran cash true-up, right, that occurs. Is it partially in Q4 and partially in Q1? What was the amount of that?

Yes. We’re expecting a true-up in Q1. Stephen, I don't know if you have the numbers on that or we've – something…

We haven't disclosed that number. Typically, we've said in prior years being high-single digits of millions of dollars. And at this stage, we're not giving any further guidance than that.

Okay. Sounds good. And then just lastly, how's the progress that – reopening the LEAP facilities, have you run into any snags or is it going pretty smoothly?

It's gone remarkably well. We brought all the three facilities all back online. After they’re closed – partially closed in the second and third quarters and productions picked right back up. We've still working on improving the product, as I said, in my remarks, and it's going very well. We've made some strides in manufacturability of the product while where things were slow, and we're happy with how it's going right now. We're just waiting for the rest of the market to pick up.

Okay. Sounds good. Thanks guys.

And we do have a question from the line of Steve Tusa with JPMorgan. Please go ahead.

Hey guys. Good morning.

Good morning, Steve.

So I think we counted roughly in the way of kind of $60 million to $65 million of revenue headwinds at AEC from your comments. Your guide is down $40 million to $45 million at the midpoint, I guess. What is – are we kind of calculating that correctly and kind of what would be growing and I guess is the $60 million to $65 million – how much of the $60 million to $65 million is destock?

Yes. Let me take that first. So your math is generally correct. It's about $60 million to $65 million. The growth is coming. We mentioned CH-53K and some other new programs we have on board that are growing that we have not talked about, and I'm not talking about at this stage. So they're smaller in nature right now for delivering some of the growth that you see there. The $60 million to $65 million, it depends how you count destock. The vast majority of it is destock quite frankly. If you look at the primary driver is being LEAP-1B, 787 and F-35, all of those are destock. And I think if you add those three together, you get into that $50 million to $55 million range of your $60 million to $65 million. So we certainly – while it's difficult to predict the future, F-35 appears to certainly be a transitory destocking event and we should get back on track after Lockheed manages to get back to their planned build rate post – the pandemic supply chain challenges. On 737 and 787, the big question there is just what does Boeing do with build rates as we go forward. Obviously we're not relying on a lot of revenue this year. So our 2020 revenue – or 2021 revenue, sorry, is unlikely to be significantly affected by Boeing's decision to build rates. But the question is to how quickly that recovers as we go into 2022, really depends on the rate at which they build and therefore consume that channel inventory. So it's a little difficult to predict the exact quarter right now where we return to growth on those programs. But in some, the vast majority of it is destocking.

If you look at the kind of 737, I would assume that that flips a bit in 2022 as these guys kind of start to think about a bit of an increase in 2022. Would you expect that to kind of go back to them stocking more regularly kind of ahead of those potential production rate increases if they start to ramp a little bit there on LEAP?

Yes. The one caveat being in the back-end of your sentence there, if they start ramp a little, if they meet their publicly stated build rates, then sure we would expect it to flip in 2022. They face a lot of challenges as well in getting back up to rate. So that's why – we're not guiding 2022 at this stage. And I don't want to pretend to know exactly when in 2022 that's going to flip on us.

Right. But the headwind goes away, like you'll be normalized on that front from what you know today by the end of 2021. So it's a hit to you guys today. It's a cash benefit to your customers, but then that goes away in 2022 because it'd be more aligned. Is that right on 737?

That's what we would expect, yes.

Okay. Great.

Yes. On LEAP-1B and just to say, the other thing is on LEAP-1A. We'll watch Airbus too as we exit 2021 with the production rates for A320neo. They've talked about raising the build rates. So that would help us to as we go beyond 2021.

Right. So it's really a 1B kind of dynamic that you’re most talking about. Okay. Great. Thanks for all the detail. I appreciate it. Thanks.

[Operator Instructions] And it does appear at this time there are no further questions in queue. I'll turn it back to Mr. Higgins for closing remarks.

Thank you, Brad, and thank you, everyone for joining us on the call today. We appreciate your continued interest in Albany International. And I would like to reiterate my thanks to Albany's employees across the globe for delivering a safe and successful 2020. Thank you, everybody. Have a good day.

And ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T conferencing service. You may now disconnect.