Albany International Corp (AIN) 2021 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Albany International Second Quarter Earnings Call. (Operator Instructions) And as a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. John Hobbs, Director of Investor Relations. Please go ahead, sir.

Thank you, Tawney, and good morning, everyone. Welcome to Albany International's Second Quarter 2021 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 that contain 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 in this call to their most comparable GAAP measures, please refer to both our earnings release of July 26, 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 opening remarks. Bill?

Thanks, John. Good morning, and welcome, everyone. Thank you for joining our second quarter earnings call.

I'm pleased to report that we delivered another strong quarter with excellent performance in both segments. Our operations continued to do a great job for our customers with best-in-class delivery, quality and service. And I'm really proud of our employees and how they stayed focused on safety, productivity, cost savings and lean kaizen process improvements.

As a company, we delivered $235 million in revenue in the second quarter, growing revenues both year-over-year and sequentially, and we achieved near-record levels of profitability. Gross margins of 43% and operating margins of 21% are our second highest quarterly margin performance. We achieved GAAP EPS of $0.97, or adjusted EPS of $1.01, and our best free cash flow quarter in the company's history, generating over $50 million in free cash flow in the second quarter.

We did face supply chain challenges in materials cost inflation and logistics that our teams were able to manage through and successfully offset some of their impact on the bottom line, and we'll keep an eye on these going forward. We continue to pay down debt and have a healthy balance sheet, which enables investment in future growth. As we've mentioned before, we're increasing our investment in research and technology across the company.

In general, we're encouraged by the economic recovery in key markets coming out of the pandemic slowdown. We're cautiously watching how the delta variant might affect this recovery, particularly international air travel in the less vaccinated regions of the world. That said, long-term secular trends are favorable, and Albany's market positions, global footprint and product development take advantage of these trends.

In our Engineered Composites segment, as domestic airline travel recovers, we expect to benefit from our position on narrowbody aircraft with LEAP engines in our partnership with Safran. As we mentioned last quarter, we're working closely with Safran to coordinate ramping production as LEAP demand picks up on recovering narrowbody OEM production. Our plans include hiring additional workers and preparing for increased production in our 3 LEAP facilities as we exit 2021 grow in the future.

We're very excited about Safran's recent announcement with GE to partner in development in the next-generation RISE engine. We view Safran as an important long-term customer and partner. As we've previously mentioned, we're investing more this year in R&D projects, particularly with new customers and new products using advanced materials such as our 3D woven composites with a goal to diversify and grow our customer base and broaden our material science capabilities. This ranges from our proprietary 3D woven composites currently used on LEAP engine fan blades and fan cases, to automated fiber placement composite wing skins for Lockheed Martin's F-35 Joint Strike Fighter, to complex components on the Sikorsky CH-53K helicopter.

We continue to develop applications for the Wing of Tomorrow program with Airbus Industries, and along these lines, we were pleased to announce earlier this month our technology collaboration with Spirit AeroSystems to develop advanced 3D woven composite applications for hypersonic vehicles. This collaboration capitalizes on the unique capabilities of both companies to achieve superior hypersonic design solutions and efficient manufacturability using Albany's proprietary 3D woven composite technologies, and it builds on our demonstrated ability to manufacture 3D woven composites at commercial scale. This is an exciting example of the types of new business and advanced technology programs we're investing in today to help secure our future long-term growth.

In the Machine Clothing segment, we're optimistic about recovering global growth, expect to benefit from long-term secular trends, which should underpin the demand for paper products. Our machine clothing business has benefited as a leading supplier in the industry since we're well positioned globally, particularly in the growing end markets for packaging and tissue products. Our product development strategies, operational improvements and technical service continue to target these higher growth end markets. Our operating teams have been firing on all cylinders, and we expect to continue our strong execution in the second half of the year.

Let me say a few words about Machine Clothing's end markets. Packaging, tissue, corrugated products, pulp and building products end markets have remained the strongest subsegments with packaging benefiting from increasing online shopping as retail goes through a fundamental shift worldwide. In tissue, we may be in a transition phase whereby at-home demand settles down and people return to school, restaurants, offices, vacations, et cetera. We've yet to see a pickup, however, in the away-from-home paper markets for our belts, which should eventually improve. Not surprisingly, publication grades continued to decline and only represented 16% of MC revenues in the second quarter. Markets in North America and China are robust, while emerging economies are still grappling with COVID and low vaccination rates, likely requiring more time to rebound.

In summary, our Machine Clothing segment continues to perform well. Our operations are strong, taking advantage of the higher growth subsegments and serving customers well around the world as a recognized global leader in the industry. This success is the result of disciplined execution of our long-term strategy.

As I mentioned, we have a strong balance sheet and good free cash flow generation, which allows us to continue investing in the technologies and customer programs that expand and broaden our competitive positioning in both segments. Our first priority for capital allocation is to invest in organic growth programs across both business segments and then to seek acquisitions that fill our long-term strategy. Our reputation for reliability, service and technical excellence is well established in Machine Clothing, and our brand is growing in aerospace as a reliable supplier and engineered materials partner. We're optimistic about the long-term opportunities in both segments.

So with that, I'll turn it over to Stephen for more to detail on the financials. Stephen?

Thank you, Bill, and good morning to everyone. I'll talk first about the results for the quarter and then comment on the outlook for our business for the balance of the year.

For the second quarter, total company net sales were $234.5 million, an increase of 3.8% compared to $226 million delivered in the same quarter last year. Adjusting for currency translation effects, net sales rose by 1% year-over-year in the quarter. In Machine Clothing, also adjusting for currency translation effects, net sales were up 0.8% year-over-year, driven by increases in packaging grades and engineered fabrics, partially offset by declines in all other grades.

Publication revenue declined by over 7% in the quarter, and as Bill mentioned, represented only 16% of MC's revenue this quarter. Tissue grades also declined year-over-year due to a more normal level of demand for grades to support customer production for at-home use, resulting in a decline from the highs for those grades that we saw last year, without significant recovery to date in the away-from-home product grades.

Engineered Composites net sales, again, after adjusting for currency translation effects, grew by 1.3%, primarily driven by growth on LEAP and CH-53K, partially offset by a decline on the 787 platform. During the quarter, the ASC LEAP program generated a little over $25 million in revenue, comparable to the first quarter of this year, but up over $10 million from the second quarter of last year. At the same time, we reduced our inventory of LEAP-1B finished goods by over 20 engine shipsets in the quarter, leaving us with about 170 LEAP-1B engine shipsets on the balance sheet at the end of the second quarter. As you will recall, we previously recognized revenue on these engine shipsets, and their value was reported under contract assets on our balance sheet.

Also during the most recent quarter, we generated about $3 million in revenue on the 787 program, up from less than $1 million in the first quarter, but down from almost $14 million in the second quarter of last year.

Second quarter gross profit for the company was $101.7 million, a reduction of 1% from the comparable period last year. The overall gross margin decreased by 220 basis points from 45.6% to 43.4% of net sales. Within the MC segment, gross margin declined from 54.5% to 52.9% of net sales, principally due to foreign currency effects, higher input costs and higher fixed costs, partially offset by improved absorption. For the AEC segment, the gross margin declined from 26.7% to 23.0% of net sales, driven primarily by a smaller impact from changes in the estimated profitability of long-term contracts.

During this quarter, we recognized the net favorable change in the estimated profitability of long-term contracts of just over $4 million, but this compares to a net favorable change of over $7 million in the same quarter last year. The favorable adjustment this quarter was principally due to a reduction as a result of changes in volume expectations to previously established loss reserves on a couple of specific programs and is, therefore, not necessarily reflective of ongoing enhancements to profitability. In fact, as we previously discussed, the expected revenue declines this year in some of our fixed price programs are leading to headwinds to long-term program profitability this year.

Second quarter selling, technical, general and research expenses increased from $47.4 million in the prior year quarter to $51.8 million in the current quarter, and also increased as a percentage of net sales from 21% to 22.1%. The increase in the amount of expense reflects higher incentive compensation expense, higher R&D spending, higher travel expenses and higher foreign currency revaluation losses.

Total operating income for the company was $50.0 million, down from $52.7 million in the prior year quarter. Machine Clothing operating income fell by $600,000 caused by higher STG&R expense, partially offset by higher gross profit and lower restructuring expense. And AEC operating income fell by $1.1 million, caused by lower gross profit and higher STG&R expense, partially offset by lower restructuring expense.

The income tax rate for this quarter was 30.0% compared to 32.1% in the same quarter last year. The lower rate this year was caused by the generation of a lower share of our global profits in jurisdictions with higher tax rates, partially offset by a higher level of unfavorable discrete income tax adjustments.

Net income attributable to the company for the quarter was $31.4 million, a reduction of $1 million from $32.4 million last year. The reduction was caused primarily by the lower operating profit, partially offset by the lower tax rate.

Earnings per share was $0.97 in this quarter compared to $1.00 last year. After adjusting for the impact of foreign currency revaluation gains and losses, restructuring expenses, and expenses associated with the CirComp acquisition and integration, adjusted earnings per share was $1.01 this quarter compared to $1.09 last year.

Adjusted EBITDA declined by 5.8% to $69.4 million for the most recent quarter compared to the same period last year. Machine Clothing adjusted EBITDA was $63 million, essentially flat compared to the prior year quarter and represented 39.4% of net sales. AEC adjusted EBITDA was $19.3 million, or 25.9% of net sales, down from last year's $22.8 million, or 31.4% of net sales.

Turning to our debt position. Total debt, which consists of amounts reported on our balance sheet as long-term debt or current maturities of long-term debt, declined from $384 million at the end of Q1 2021 to $350 million at the end of Q2. And cash increased by just over $15 million during the quarter, resulting in the reduction in net debt of about $50 million. Capital expenditures in the quarter were approximately $11 million compared to $9 million in the same quarter last year. The increase was caused primarily by higher capital expenditures in Machine Clothing.

As we look forward to the balance of 2021, the outlook for the Machine Clothing segment remains strong. Compared to the same period last year, MC orders were up 10% in the second quarter and up over 3% year-to-date. We are also seeing some foreign currency tailwinds to our MC revenue, primarily driven by the strong euro. Although the recent strength in the dollar versus the euro means that we are unlikely to see the same foreign currency tailwinds in the back half of the year.

Overall, we are raising our previously issued guidance of revenue for the segment to between $585 million and $600 million, up from the prior range of $570 million to $590 million.

From a margin perspective, in Machine Clothing, we delivered another strong quarter with adjusted EBITDA margins of almost 40%. We saw some increase in the level of travel during the quarter, but we are still not back to a normal level of travel. And the segment's travel expense in the quarter was still almost $2 million below the level in the same quarter in 2019. So we may see some additional pressure from that in the balance of the year as we continue the return to normal.

We have also seen some pressure from increased input expenses, both raw materials and logistics, and expect these pressures to continue through the balance of the year. We continue to work to offset the impact of these cost increases to the greatest extent possible by driving down our production costs through continuous improvement initiatives. However, we do expect to see overall margin pressures in the back half of the year, driven by both increasing travel expenses and rising input costs.

At the start of the year, we had anticipated seeing foreign currency exchange rate pressures on MC profitability, particularly caused by the recovery in the Mexican peso and Brazilian real, as the devaluation of both of those currencies in the middle of 2020 had provided us a bottom line benefit since we have more expenses than revenues in those currencies. Year-to-date, we have not seen as much headwind from those currencies as we had expected, and we have also benefited from the strong euro, a currency where we have more revenues than expenses.

As a result, overall year-to-date foreign exchange rates have actually provided us with a modest adjusted EBITDA benefit compared to the same period last year. However, based on current exchange rates, we will not see the same comparable foreign currency benefit in the back half of the year. We are also cautious about the effects of a potential resurgence in COVID cases on segment results in the back half of the year. As a result of all of these factors and the increase in revenue guidance, we are increasing our adjusted EBITDA guidance for the MC segment to a range of $210 million to $220 million, up from the prior range of $195 million to $205 million.

Turning to Engineered Composites, we delivered a strong quarter, aided by the net favorable adjustment to long-term contract profitability. Absent that pickup, our Q2 results were consistent with what we had indicated last quarter, down from Q1, representing what we had expected to be the trough for the year. However, given the impact of the net favorable adjustment on the second quarter results, we now expect that Q2 will be the quarter with the highest segment profitability this year, as we expect Q3 and Q4 profitability to be more in line with what we delivered in Q1.

For the full year, we still expect 787 program revenue to be down over $40 million from the roughly $50 million generated on that program last year with Boeing's recent announcement of a reduction in 787 build rate, all but eliminating the possibility for any upside on that program later in the year. We also still expect LEAP revenue to be in line with prior expectations and roughly flat to last year. However, on a more positive note, while F-35 revenue was down slightly in the second quarter compared to the same period last year, recent order volume has given us confidence that we will not see the full year decline in F-35 revenue that we had previously expected.

Overall, due to the increased confidence in F-35 revenue, the adjustments to long-term contract profitability this quarter, and improvements in several other areas, we are raising our guidance for segment revenues to be between $290 million and $310 million, up from the previous range of $275 million to $295 million. From a profitability perspective, driven by the same factors, we are raising our AEC adjusted EBITDA guidance to be between $65 million and $75 million, up from the prior range of $55 million to $65 million.

We are also updating our previously issued guidance ranges for company-level performance, including: revenue of between $880 million and $910 million, increased from prior guidance of $850 million to $890 million; effective income tax rate of 28% to 30%, unchanged from prior guidance; depreciation and amortization of approximately $75 million, the top end of prior guidance; capital expenditures in the range of $40 million to $50 million, down from prior guidance of $50 million to $60 million; GAAP earnings per share of between $2.84 and $3.14, increased from prior guidance of $2.38 to $2.78; adjusted earnings per share of between $2.90 and $3.20, increased from prior guidance of $2.40 to $2.80; and adjusted EBITDA of between $225 million and $240 million, increased from prior guidance of $195 million to $220 million.

Overall, we continue to be very pleased with the performance of both segments. Both faced challenges, primarily rising input costs for machine clothing and a recovering commercial aerospace market for the Engineered Composites segment. But both segments are overcoming the challenges and delivering strong results, which is a testament to the hard work by all of our employees across the globe.

With that, I would like to open the call for questions. Tawney?

(Operator Instructions) Our first question comes from the line of Peter Arment with Baird.

You actually have Eric Ruden on the line for Peter today. I guess if I could start off, Stephen, maybe at MC. I'm just wondering how the mix that you saw for sales in this quarter compares to what you're seeing in the current order environment there, looking to the back half of the year, with geography being the bigger driver of margin pressures there. Is there any shift in a particular reason in causing any headwinds, or are the headwinds more surrounding just the rising input costs and the other items you called out there?

So there was a little bit of pressure from that. Certainly, right now, the recent order strength we've seen has been back to strength in the Asian market, China in particular, which as we've discussed before is on the margins of somewhat lower overall margin business. So that's certainly part of the pressure we see in the back half.

Okay. And then in terms of rising input costs, how does what you're kind of looking at for the second half of the year compare to what you've already seen and been managing through in the second quarter?

It certainly is still increasing in the first instance. And secondly, we certainly didn't see even the current level of elevated costs for the full first half of the year. So we're in an environment where we see increased pressures. We also, as we've discussed previously, it takes a while for some of these rising input costs to reflect themselves in our cost of goods sold as we make product and it goes into inventory and then gets sold. There is typically a lag of about 6 months from some of those rising costs in raw materials before the impact or actual cost of goods sales. So it's a different environment than you've seen in the first half of the year, for sure.

Okay. That's helpful. And then maybe just one quick one on AEC. I appreciate the details on moving pieces around the destock there. But is the $60 million to $65 million we kind of talked about as a full year headwind for 2021 on the inventory destock still the right number? It sounds like 787's going to be a headwind for longer, but F-35 maybe offsets a bit of that. Maybe you could just talk to the moving pieces there.

Yes, certainly. The number is lower right now because we certainly don't face the F-35 decline, as I indicated. So the destocking number for the year is somewhere in around about $50 million at this stage.

Our next question comes from the line of Gautam Khanna with Cowen.

I had a couple questions. Machine clothing continues to kind of do better than we thought it would when we were looking at a longer-term framework. What do you think the right annual EBITDA is, adjusted EBITDA for the machine clothing business? Are we in a new paradigm where we're just going to be at $200 million-plus, or do you think it will ultimately mean revert down?

Yes, it's pretty hard. We have that discussion internally quite a bit. It's pretty hard to look out with a crystal ball and say what it's going to be. But it does feel like it's gotten to a better level, and operations have been holding up really well. So we're going to try to keep it at that level.

Okay. Got it. Secondly, just on the F-35, so what actually changed? I'm just curious. Is that the full $15 million variance on the destocking? That $65 million goes to $50 million, is that all F-35? And sort of what changed in the last quarter?

Yes. Maybe just a little color, and then Stephen can add the financials. We did work with our customer, Lockheed, and we got improved order flow in the quarter. It helped with the F-35 production rates to keep at a more level load on the factory so that we weren't actually reducing, as we had expected when we spoke in the last quarter.

And some of that includes continuation of some of the additional work we had talked about previously picking up some of the fixed wing skins we're making in the automated fiber placement machine. We got a contract extension on that, which allowed us to continue work on that, which was certainly not a sure thing early in the year. But overall, yes, the decline from the $60 million to $65 million range to the $50 million range, Gautam, that you referenced is really driven by F-35. The other programs that we look at out there, most notably 787, there's been no material change from what we expected 6 months ago.

Okay. And with the F-35 change, does that effectively prevent or mute the growth we might otherwise see in 2022 and 2023? Because when we look at their planned production -- or said differently, their planned deliveries. I think it's 139 this year, 169 next year and then stabilizes in the 170 range 2 years out. So are we seeing that pick up this year, if you will, and so it's going to be flattish in 2022 and beyond, just based on your discussions with Lockheed? Or how should we think about the growth program?

Yes. I wouldn't jump to that conclusion just yet. I think we've got to get a little further along here to figure out what 2022 looks like. But, yes. So our production goes to a mix of new aircraft as well as sustainment use. So I don't think it eats into the future aircraft program.

Yes, Gautam. While we clearly don't have numbers and aren't giving any guidance yet, we would clearly still expect to see some growth in F-35 in 2022 and 2023.

Okay. Got it. Last one before I turn it over just on the LEAP program. So you talked about the 1B. Any updates there on sort of when you expect to have inventories in balance with no excess inventory, if you will? And you also mentioned I think all 3 facilities are ramping up on the LEAP. If you could just explain sort of what you're gearing up to do this year and next year in terms of production on the program -- on those 2.

We are gearing up the production in the facilities, and obviously, the A320neo program's going fast. And that comes out of sort of the destocking phase into more alignment with production of new aircraft long before the 737 program does. So we are ramping up all 3 facilities as we look into next year. It's relatively flat through the rest part of this year, but growth into next year.

Yes. And Gautam, look; in terms of the inventory level, I mentioned we have 170, roughly, engine shipsets on hand at the end of the quarter, and that's down from close to 250 at the start of the year. So it's been a nice decline of 70 shipsets year-to-date. We never -- I have no intention nor desire to get to 0 on that. The exact level we need to get to really depends on the volume, the rate at which Boeing is produced and therefore we're shipping because we have a contractual requirement of a certain number of weeks of inventory on hand. So it's not exactly clear what -- it's kind of a complicated calculation as you're looking at us declining and them potentially going up, but at what point we cross. But when we get to somewhere, let's say, certainly we wouldn't go below 100 shipsets on hand, to give you an idea of how many we have to burn through. So the most recent quarter, we burned through 20. So if you think we're getting down to 100 would take several quarters. It won't take 1 or 2 quarters, but it's several quarters likely ahead of us. But that all depends on Boeing ramping up production so that they're all ready to kind of meet us when we get to that point. Obviously, Boeing is doing a great job getting back up to production, but there's still a lot of uncertainty as to what rate they'll hit at what point in time.

(Operator Instructions) Our next question comes from the line of Michael Ciarmoli with Truist Securities.

Maybe just one on machine clothing. I guess with some of the orders you're seeing and thinking about the rising input costs, are you able to potentially pass through some of those costs? Or I think you alluded to most of the plan of attack was going to be on the productivity side, but maybe just what you're seeing or what the flexibility is there.

Yes. It's a good question. We are working to see if we can pass through cost. It's a mixed picture because we have some contracts that are longer than others, so price negotiations come up over a period of time and with different customers at different times. So we are looking at that as we go into next year. So we will work to do that. Our primary approach has been to drive continuous improvement to offset inflation costs just in general, and we've done that for years.

Got it. Got it. And then just maybe one other one on the engineered side. When you think about the LEAP program, obviously Airbus has put out some specific color on where they want to take production. Assuming the path to 75 and assuming the MAX program, are you guys set on potential capacity and the ability to meet that potential demand? How are you guys looking at the program potentially reaccelerating and everything from labor to machining and tooling?

Yes, it's -- I'd love to have that challenge. We've done a good job of working on the facilities while things have been slower here over the last year or so, improving productivity, improving our throughput. So as production ramps back up, we believe we're in much better shape than we were even in 2019. So yes, we are hiring people. That'll be the thing we're keeping our eyes on is how easy it is to get operators and folks in the facilities. So far, so good. So yes, we think we have the capacity in place. We put a lot of equipment in place back in 2019 to grow, so that'd be a great problem to have.

Got it. And then last one. You obviously lifted the guidance, but the second half clearly looks to be weaker kind of across the board; revenue, EPS, EBITDA. Anything -- I know you're not going to talk 2023, but we've got weakness in the second half, but presumably, as the world begins to recover, travel recovers, we should see a step-up as you maybe exit 2021 here.

I think on the MC side, our third quarters typically we look at as a little bit of a softer quarter with the summer slowdowns. And if paper companies are getting equipment to do maintenance, downtime maintenance, they would have already ordered that in the first and second quarter of this year. So we look at the third quarter as a little bit slower there. And then I think on the AEC side, we've tried our best particularly on the commercial side where there's destocking going on to kind of level load the factory as we go back into the second half of the year and kind of run at a rate that's predictable and well planned so we can execute well in the plants. And then some of our growth programs, they kick in next year. Not so much in the middle or second half of this year.

Yes, if you look at our margins, if you look first at AEC, and by the way, I believe I misspoke earlier and said that EBITDA guidance for the segment of $65 million to $75 million. It's actually $65 million to $70 million. But if you look at the back half of the year, if you take out the unusual pickup in long-term contract performance that we have here in the second quarter, the $4 million that was largely attributable to a reduction in loss reserves, there's not a huge amount of margin compression in the back half of the year in AEC. The margin pressure is really in machine clothing, and it's driven by some of the factors we described. The rising input cost's a significant factor, including logistics, which you can't lose sight of. These are large pieces. It's very expensive to move them.

While we try to limit the amount of transoceanic shipment with pieces of this size, and we have very little going back and forth, for example, between North America and Asia, we do get some -- a fair amount of back and forth between Asia and Europe. And those costs have risen very significantly. That certainly puts pressure. The rise in travel puts pressure on it. The FX environment being less favorable now than the average we've seen year-to-date puts pressure in the back half of the year. Some of the mix shifts that I believe Eric asked about upfront play some pressure. And just overall, there is, to be fair, a little bit of concern also around COVID, and not necessarily just how it impacts our markets, but also our factories. At various points in time, we've had to shut down some of our factories because of COVID outbreaks in the region. And so there's a little uncertainty in the back half of the year as well there.

Our next question comes from the line of Ron Epstein with Bank of America.

Could you clarify a little bit? Just a little confused on the impact of 787 on the business, meaning that there's -- looks like there's a chance here that Boeing might not deliver any 787s for a while. Maybe not until the end of the year. How does that flow through the business for you guys?

I guess as a start, as we've communicated before, we've been running the 787 line just warm enough to keep it going. I mean, it's such a low level of production. We don't want to lose the capability, the talent, the people and keep operations running and doing that with our channel customers. So it's at a very, very low level. The more recent announcement from Boeing, while a little disappointing, is not really going to affect us this year. It's probably going to push things maybe further to the right as we look into next year and beyond.

Yes. So for the year, Ron, we've said to expect somewhere in the range of, let's say, $10 million of revenue this year. On 787, we delivered $4 million year-to-date, so $6 million in the back half. So whether it's $6 million, or close or lower than that, is not going to have a material effect. It is important to understand that is a firm fixed-price contract. And so as we lose revenue, the decremental margins are not just the average margin of that program because it's obviously absorbing overhead, we have that loss of fixed cost absorption.

I believe on our fourth quarter earnings call when I provided guidance 6 months ago, I talked about the fact that some of the incremental margins on some of our fixed price programs had EBITDA margins in the 30s. And so the drop-through is certainly going to be in that sort of level as we lose that EBITDA -- or sorry, revenue. So this year, irrespective of what happens, not a huge impact. But certainly next year, we had anticipated an increase from this year's level. If things change, we could certainly see a repeat of what we're seeing this year. Or even lower level, closer to zero revenue next year, but that's obviously an open question.

Got it. And then maybe just one follow-up. If Airbus were to actually get to 70 A320s a month, how are you -- are you guys set up to handle that?

Yes. And look, Bill touched on this a few moments ago in that we certainly need to staff up with operators in our facilities. We brought our headcount down as our production volumes decreased. It's obviously a very competitive labor environment right now. And so that's clearly -- it's not just flipping a switch. There's challenge in it. But we certainly have the physical plant that we can meet those needs. There may be some CapEx required, but nothing unachievable. The big challenge is just getting the labor force we would need. Not that we have unmet needs today, but staffing up to that level would obviously require some significant hiring. And I'd say it's just -- it's a competitive market.

Yes. And I think that as we think about the more near-term going from 45 to 50, 50-plus, we're ready for that. We have to add people, but we have the capital in our facilities already.

And we have no remaining questions in the queue at this time.

Okay. Well, thank you. Thank you, everyone, for joining us on the call today. We appreciate your continued interest in Albany International. And of course, if you have any questions, please feel free to reach out to John Hobbs, our Director of Investor Relations. His number is (630) 330-5897. Thank you and have a good day.

Thank you. Ladies and gentlemen, this conference will be available for playback later today at the Albany International website at www.albint.com. That's www.albint.com. That does conclude our conference for today. We thank you for your participation and for using AT&T Conferencing Service. You may now disconnect.