May 5, 2017
Executives
Joseph Morone - President and Chief Executive Officer John Cozzolino - Chief Financial Officer and Treasurer
Analysts
John Franzreb - Sidoti & Company Steve Levenson - Big Rock Research Gregory Vasse - Times Square Capital Jim Foung - Gabelli & Company
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the First 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 section.
Instructions will be given at that time. At the request of Albany International, this conference call on Friday, May 5 2017 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.
John Cozzolino
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?
Joseph Morone
Thanks, John. Good morning, everyone and welcome to Albany’s Q1 2017 earnings call.
As usual, I'll summarize the quarter, John will then go into more detail, I'll follow with our outlook and we'll close with Q&A. In Q1, 2017, both businesses continued to perform well and in line with our short and long-term expectations and objectives.
Machine Clothing once again generated strong income and strong new product performance and Albany Engineered Composites once again generated strong growth, executed well on each of its key programs and continued to position itself for both improved profitability and additional new business. In Machine Clothing, sales were essentially flat both sequentially and in comparison to Q1 2016.
There were no significant deviations from recent market trends during the quarter, once again, we offset a significant decline in publication grade sales with incremental gains in the other grades, most notably during Q1 in tissues. By the end of Q1, the publication grades accounted for 23% of total sales, compared to 25%, a year ago, 27%, two years ago, and 30% three years ago.
Our new product performance continued to be strong across all product lines, especially in tissues. And while competitive pricing pressure remained intense, particularly in Europe and Asia, the top-line impact was offset by volume growth in Asia.
Machine Clothing profitability was once again strong in Q1 2017 due to incremental productivity gains and good plant utilization. Gross margin, segment net income and adjusted EBITDA were all in line with very strong comps from Q1 2016.
Meanwhile AEC continued on its growth trajectory. Q1 sales grew to $56 million from $27 million in Q1 2016 which was the last quarter before we acquired our Salt Lake City division.
Excluding Salt Lake, Q1 sales grew by 34%, compared to Q1 2016. The year began slowly for AEC but revenue accelerated as Q1 progressed and we entered into Q2 with this business right on track toward our full year target of 25% to 35% revenue growth over full year 2016.
The growth in Q1 was once again led by LEAP. AEC continues to execute well on the very aggressive LEAP brand schedule while in the marketplace, the LEAP engine continues to perform well.
The order backlog for LEAP exceeded 12,000 engines at the end of Q1 with no signs of market softening, CFM delivered its 100th LEAP engine during the quarter and the LEAP engines now in service are operating well and meeting all of their performance targets. Q1 sales in Salt Lake were flat compared to Q4, but as with the rest of AEC, we expect a sharp increase in Salt Lake sales for the balance of 2017.
It has been a full year since the acquisition and our experience today particularly our experience with Salt Lake’s customers validates our view of the growth potential that motivated the acquisition in the first place. For all of Salt Lake’s key growth and legacy programs, we are meeting customer expectations in the near and long-term demand outlook is strong.
Of particular note, since our last earnings call, our two recent developments in the CH-53K program. Salt Lake was informed during the quarter that it was selected by Sikorsky from more than 200 suppliers as the supplier of the year for the CH-53K program.
And in early April, the CH-53K was officially approved by the Department of Defense to enter into production and deployment. As full rate production next decade and assuming no additional content, this program has the potential to generate as much as $150 million per year of AEC revenue.
As for AEC profitability, adjusted EBITDA as a percent of sales improved to 9% in Q1, compared to 8% in Q4 and 5% a year ago. Profitability withheld back by a still substantial effort to complete the integration of Salt Lake into AEC for example.
Although our ERP system successfully went live in Salt Lake in February, the typical inefficiencies associated with learning a new system and modifying work processes will continue to be a drag on productivity well into the second half of the year. Shortly after the end of the quarter, we announced a significant restructuring at Salt Lake, which coupled with continuous improvement in operation should result in gradual improvements to profitability by the end of the year.
Q1 was also marked by a significant increase in new business development activity in AEC, as John and I have often discussed with all of you, AEC is pursuing new business opportunities on three fronts, on existing aerospace platforms, on new aerospace platforms, and through diversification outside of aerospace. The most notable development during Q1 were again on a first front existing aerospace platform.
AEC received a significant number of formal requests for proposal and more preliminary expressions of interest from a broad cross-section of OEMs, largely processed by AEC’s execution and emphasis on lean manufacturing in its existing programs with those OEMs. So in sum, this is a good quarter for both businesses with stable market trends, good product performance and strong adjusted EBITDA in Machine Clothing, and in AEC, with continued strong growth and good performance on all of the key growth and legacy programs combined with encouraging progress in new business developments and important steps toward gradually improving profitability.
Now let’s turn to John for a more detailed look at the quarter. John?
John Cozzolino
Thank you, Joe. I’d like to refer you to our Q4 financial performance slides.
Starting with Slide 3, net sales by segment total company net sales in Q1 increased 15.6%, compared to Q1, 2016, excluding currency effects, net sales increased 17% compared to last year. MC net sales in Q1 excluding currency effects were essentially flat compared to Q1 2016.
Q1 is the second consecutive quarter of flat year-over-year sales because, as Joe noted, declines in publication sales were offset by incremental increases in other grades. AEC net sales in Q1 increased by just over $29 million, that’s about $20 million of that increase due to the Salt Lake City acquisition.
The remainder of the increase in AEC sales was due to growth in the LEAP program. Turning to Slide 4, total company gross margin as a percentage of net sales was 38.1% in Q1, compared to 42.1% in Q1, 2016.
The lower gross margin percent reflects the change in the business mix due to higher AEC sales. This trend as you can see on the chart, started in Q2 2016 and we continue to expect this trend to continue as AEC growth accelerates over the next few years.
MC gross profit margin in Q1 was very good at 48.5% of net sales and somewhat better within the last four quarters. AEC gross profit margin increased to 12.1% of net sales in Q1 2017, compared to 11.5% of net sales in the comparable period last year.
Slide 5 shows net income and adjusted EBITDA by segment for the quarter. Adjusted EBITDA for the total company in Q1 2017 was $43.5 million, compared to $41.3 million in Q1 last year.
MC adjusted EBITDA was $48.3 million in the quarter, compared to $49 million in Q1 last year. AEC adjusted EBITDA improved to $5.2 million in the quarter compared to $1.5 million in Q1 last year, as the acquisition added $2.9 million to adjusted EBITDA in the current quarter.
Moving to Slide 6, earnings per share, we reported net income attributable to the company in Q1 of $0.34 per share, compared to $0.42 per share in Q1 of last year. Adjustments for restructuring, foreign currency revaluation and tax adjustments as well as acquisition expenses in Q1 2016 are noted on the slide.
Excluding the adjustments, net income attributable to the company was $0.46 per share in both Q1, 2017 and Q1 2016. The restructuring in Q1 2017 was centered in AEC and represents an important step in AEC’s efforts to gradually improve profitability.
Lastly Slide 7 shows our total debt and net debt. Total debt dropped just over $4 million to a balance of about $480 million at the end of Q1.
However, with a declining cash balance of approximately $38 million net debt increased $34 million during the quarter. Net debt typically increases in Q1 due to incentive compensation payments, seasonal increases in accounts receivable and inventory and high first quarter income tax payments.
So a simple cash flow effects for Q1 were compounded by sharp increases in receivables and inventory and capital expenditures associated with multiple program ramps in AEC. Payments for all capital expenditures in Q1 were about $25 million consistent with our expectation of full year capital expenditures of between $95 million and $105 million.
As we’ve mentioned previously, we expect 2017 and 2018 to be peak years for capital spending due to aggressive program ramps in AEC. At this rate of spending for capital expenditures, we expect additional quarterly increases in net debt for the remainder of the year, but at a considerably lower level than in Q1.
Now I’d like to turn it back to Joe for some additional comments before we go to Q&A.
Joseph Morone
Thanks, John. Turning briefly to our outlook, in Machine Clothing, the market appears stable and we entered Q2 with a good order backlog.
So even though we have been anticipating and are seeing some inflationary pressures, Machine Clothing remains on track toward its full year objective of annual Adjusted EBITDA in the middle of that $180 million to $195 million range that we have discussed on numerous occasions. For AEC, again, we expect – we continue to expect full year 2017 revenue to be in the 25% to 35% range higher than full year 2016.
And for adjusted EBITDA as a percentage of sales to slowly improve. And for the longer term, the intensity of new business development activity in Q1 suggests that there is more upside than downside risk to our current estimate of $450 million to $500 million of revenue by 2020, and that there is considerable potential for substantial growth beyond 2020 as well.
In sum, this is a good quarter for both businesses as MC generated strong adjusted EBITDA, and AEC’s strong growth and again both businesses remain firmly on track toward both their short and long-term goals. And with that’s let’s go to any questions.
Kevin?
Operator
[Operator Instructions] And the first question is from the line of John Franzreb of Sidoti & Company. Please go ahead.
John Franzreb
Good morning, Joe and John.
Joseph Morone
Good morning, John.
John Franzreb
I’d like to start with the paper mix, as you kind of referenced this in your prepared remarks, you gave us with the publication grades were, you kind of talked to what’s the mix is to the other grades A, and B, can you talk, I think, we are going to kind of bottom out in the degradation of the publication market, or it’s something I think you may want to exit and close it?
Joseph Morone
If you take all of the – let’s take the first question which is the mix, if I understood it correctly, the size packaging. And it’s about 35% of our sales, if you take tissue, pulp, all of the non-wovens and – related grades like corrugated belts it’s about 35% stable to growing, all of the pieces of that have some elements of growth in the marketplace.
See, if you assume that demand for those grades in aggregate and really the demand for packaging as well, they are G&P type of demand growth out in the marketplace. That tends to translate to slightly lower demand for Machine Clothing growth, but if you figure and you aggregate all of those non-publication grades are growing on the order of 1% from a Machine Clothing consumption.
That’s a pretty good estimate. We – there are some, as for decline in publication there are some analysts out there who expect some sort of flattening, we have seen no sign of that at all that if you look at Q1, for example, there is – some people argue that where most of the shrinkage in magazine consumption has already taken place and that there is going to be some plateau of consumption of business magazines or fashion magazines.
But, if you take Q1, look at the trends in advertising and magazines we are down another 16% which is a pretty good predictor of where that industry is going. So, our model does not assume a flattening, it assumes at some point there is going to be a slowdown in the growth, in the shrinkage, but just because it’s becoming such a small piece of the remainder.
For us, we are just assuming 5% to 10% declines in publications offset by flat to 1% growth in the other grades. That’s what gets us to more or less volume stability over time, gradual diminution of the top-line decline being replaced by more or less flat top-line.
John Franzreb
Okay, got it. And switching over to EC, you have some restructuring charges as of the quarter you just reported, but you also said there is some in the coming quarter.
Could you just provide some color as to what these charges before? When do you expect to realize the benefits of these actions?
And numerically, how much we are talking about and last date going forward?
Joseph Morone
Hi, John, I think the right way to think about this is to go back to our objectives for this business which is to get EBITDA margin from 8% at the end of the last year to 18% to 20% by 2020. And that improvement will be driven by a combination of learning curve efficiencies as we ramp the program which be reflected in greater labor and material productivity.
Fixed cost leverage both at the gross margin level and in SG&A plus some synergies associated with combining these two organizations. And if you model out a steady ramp in EBITDA margin between now and 2020 and just spread it out evenly and assume all of those forms of productivity improvements are gradually being implemented, you get, I think you get pretty close to what we are expecting.
And these steps in Salt Lake are one of the planned measures along the steady improvement journey that we are anticipating and confident about over the next four years.
John Franzreb
Okay, all right. But then, how about, in regards to the ramp as of to revenue, I believe you said that’s flat year-over-year, but you are expecting their legacy program to grow significantly in this year.
If you talk about which programs are going to hit first and what kinds of growth rates you are agreeing to just that echoes it?
Joseph Morone
The Boeing fuselage frame program is going through the steepest ramp right now. And the following behind that in terms of ramp is the JSF program that’s starting to ramp a little later than the Boeing program and then among the legacy programs, the missile program at Lockheed JASSM is also showing some growth.
The CH53-K program which went all of a sudden done will be the largest program with a big ramp doesn’t really ramp until the end of the decade. So, it’s the sequence is, Boeing, JSF, and then CH53-K.
But we are seeing also in the important legacy program the missiles, we are seeing some growth potential there as well. We are not ready at this point to give you a more precise growth estimate other than the aggregate 25% to 35%, but, first approximation of both LEAP and Salt Lake, look like they are growing at that pace.
John Franzreb
One last question and I’ll get back into queue. You talked about your optimism for informal request for proposals.
Joseph Morone
Yes.
John Franzreb
You didn’t mention where is it coming from. Was it coming from the Albany let’s call it the legacy business, versus the Albany business tied to LEAP or is the SLC side of the business.
Could you kind of tell us where – what’s this underlying demand so far that comes?
Joseph Morone
Yes, this is – I think you could tell us on the tone of my comments, this is a pretty big deal and it’s – I would say, it’s one of the biggest surprises of the acquisition. We knew the acquisition would elevate our profile in the industry, because it took us from primarily in a Saffran shop with some good programs in Rolls-Royce.
So mainly in engine shop to really now one of the prominent suppliers in the composites industry. And, we knew that we were well positioned on the important growth platforms.
But we didn’t fully anticipate was that the timing of that acquisition lined up really well with the timing at which a number of our major OEMs were getting ready for their own ramps and trying to put their own supply chains in order. And the net result is coupled with - their need to ramp coupled with our increasing visibility coupled with outstanding execution at our Boerne, in Texas, plus really strong execution on each of the key programs in Salt Lake plus high visibility and good execution in LEAP.
All of those together, have just increased our profile with all of our key OEMS. So whether it’s Boeing, whether it’s Lockheed, whether it’s Sikorsky, whether it’s GE, whether it’s Saffran, it’s that kind of conversions of they are focused on supply chain and we are executing.
That’s what’s really triggered these conversations.
John Franzreb
Okay. Thanks, Joe, I’ll get back in queue.
Joseph Morone
We keep saying that risk of this business is execution and it did all for growth that this is – this work as we execute and that’s why we just put so much emphasis on operational execution.
John Franzreb
Thank you.
Operator
And next question is from the line of Steve Levenson, Big Rock Research. Please go ahead.
Steve Levenson
Thanks, good morning, Joe and John.
Joseph Morone
Hey, Steve.
Steve Levenson
In your remarks and in the press release you mentioned there is more upside than downside related to LEAP and I am wondering if that’s a richer mix of 737 MAX and A-320 NEO? Would you expect the contribution from the Chinese Comac C919, which went for the first time this morning?
Joseph Morone
Yes, that was significant. You know, we – LEAP is the sole source on Comac, sole source on the MAX which is also, according to the COO of Boeing entering into service, the first engine deliveries are this month and then of course, LEAP is being generated, is being delivered as probably flying on about 45 aircrafts now, perhaps more on the NEO side.
I didn’t mean to suggest that there is more upside on LEAP per se, as this is just really strong execution on the LEAP. We are ramping too, no deviation from CFM and on their expectation to ramp to 2000 engines per year from this year a target of 450 to 500.
The one really interesting or a couple of interesting pieces out there that suggests there is still upward market pressure is, Boeing’s CEO on their earnings call made it clear that they are overbooked at their current production, planned production rates ramping to 57 planes per month and that there is enough market demand out there to go above 57 planes a month. There is also clearly pressure on the Airbus side given the problems with the gear turbo fan is having clear pressure on the Airbus side for CFM to deliver more engines.
CFM to its credit has been resisting all pressures from Boeing and Airbus today to ramp up production because, they feel they supply rightly, their supply chain is pushed to the limit. Now and what is distinguishing CFM in the marketplace and LEAP in the marketplace is to actually delivering what they have promised.
So you don’t want to push their supply chain too soon to go to higher rates because the last time they want to do is compromise their validation of their well earned reputation that when they promise something, they deliver it.
Steve Levenson
Okay, thanks. Just got here a couple more quick questions.
If it’s not from volume, then can you comment a little bit, and I know, you can’t go into index, but on you are seeing out of your factory on the production of the blades?
Joseph Morone
We are really happy with the yields and if you look at any historical standard of composite parts being introduced on to the engine, and we are talking rotating parts, these aren’t secondary parts, these are primary parts. This is a real success story.
Now, we still have more improvements to go and on a daily basis, we are working with our customer on those improvements, but this is a good story and we are delighted with the progress so far. Let’s say we are right on track for what we need to do to hit the ramp.
Steve Levenson
Okay, thanks. And you talked about CFM, with existing pressure, do you see any weak links?
Do you hear anything about weak links in the supply chain that could constrain the production ramp at all?
Joseph Morone
Well, no. But the way that translates to us would be – are we seeing any diminution of pressure to ramps at a breathtaking speed and the answer is no, we are not.
So our two datapoints are number one, we are watching CFM’s customers as it takes for more output and on the other hand we are feeling – we are not feeling any diminution of pressure for us to meet the targets that we’ve been handed.
Steve Levenson
Got it. Thank you.
One other question related to LEAP is, there has been some chatter in a few trade journal articles about Boeing and the thinking on a mid-size aircraft in the CFM is beginning to think about the engine that it could supply which they said is not a LEAP, but I would imagine is some derivation from the LEAP. Would you expect continuous composite fan blades in case it’s really the more material in a new engine would compatible with playing that size?
Joseph Morone
Well, it does feel soon, you’ve seen this a number of times already, but there – we are clearly in the multi-dimensional chess, the stage of the multi-dimensional chess game now where everybody is positioning against everybody else. So clearly Boeing is trying to position against itself against Airbus for that gap in the market.
I think it would be on the stake and I’ll underestimate the impact that Comac’s emergence it is having in Boeing’s thinking as well, it’s not just about Airbus. And like, so that’s number one, number two, it’s clear that Boeing is trying to when emphasizing the development cost associated with its business plans, it’s clear it’s trying to signal to its suppliers both engine and airframes that they expect if you are going to play on the new middle market aircrafts, so you are going to have to pay part of the development cost and it was interesting that Saffran’s CEO clearly up the entity on his earnings call by saying yes, we are interested, yes, we are in, yes, we are talking to Boeing about this.
Yes, it fits within the CFM agreement. All I can tell you about whether there will be composites on that new engine and what that new engine will look like is, Saffran has in CFM is responsible for the fan module and the low pressured turbine.
It has made a big bet on 3D woven composites for its future architectures and the fan module. So if Boeing pulls the trigger and CFM wins or the one if it’s going to be two engines prior, those one of the engine suppliers, any advanced composites on that engine has to go through any 3D woven composites on that engine has to go through Albany Saffran Composite have to be manufactured in our division.
Steve Levenson
Got it. Sounds great, thanks.
And one last question related to Machine Clothing. Since you still see declines in the publishing grade, do you think you’ll get to the point, where the demand for packaging and tissue exceeds the decline in publishing grades such that there will be little growth in that business?
Joseph Morone
We think it’s – we really like this business. It’s a great business.
The long lived installed base generates a lot of cash because of the value created for the customers, but we just think it’s a track run just to think if this is a growth business. The other grades will have some growth, but publication will continue to decline, but more importantly even where the grades have growth, there is enough innovation going on in our industry that the lives of our products extend just enough with innovation to wipe out whatever incremental growth there might be from the growth in those grades.
So, we are very careful to always tell investors think of this as a flat adjusted EBITDA business in that range of $180 million to $195 million and a piece of that flat going forward is stable volume, stable top-line or stabilizing top-line. We just think it’s a trap to thing that’s going to grow.
And if it does, that’s upside.
Steve Levenson
Okay, appreciate the – all the details. Thanks very much.
Joseph Morone
Thanks, Steve.
Operator
[Operator Instructions] And we do have a question from the line of John Franzreb with Sidoti & Company. Please go ahead.
John Franzreb
Just looking with the P&C side of the business, Joe. Can you talk a little bit about the competitive landscape?
Are there any sizable material contracts up for bid this year and what your take is on industry path to be right now and the pricing environment?
Joseph Morone
We are not seeing anything right now that would alter the dynamics of the industry. I mean, it’s never say never, but right now, it’s all of the patterns that we’ve seen over the years from publication being displaced by digital media, packaging tissue and pulp and non-wovens growing to offset that.
Long-term growth in paper production in Asia, all those trends continue. The pricing pressures we think are heavily driven by industry structure both in our customer and in our Machine Clothing industry.
So, downstream in those geographies, where there is overcapacity in our customer base that translates to pricing pressure on our industry and then in our industry, where there is overcapacity that in turn translates into pricing pressure to us and our competitors. When those two line up together, overcapacity in our customer base plus overcapacity in our industry, the pricing pressure was most intense.
So, that’s Europe. Asia, there is strong pricing pressure, but it’s at least as I tried to allude to in my commentary, it’s a least somewhat mitigated by volume growth in Asia, particularly in packaging.
There is less – the paper industry is more consolidated in the Americas. The Machine Clothing industry is more consolidated in the Americas.
So, while it’s really a struggle to get any kind of price relief in the Americas, there isn’t the same – price pressure that there is in Europe and Asia. None of that has changed.
That’s where we’ve been really since we came out of the recession and that’s just the way of life. We don’t see anything right now that would alter that dynamic either for the good or the bad.
John Franzreb
Okay and your take on with capacity in the industry, if you could?
Joseph Morone
I think there is – the industry has – our industry, Machine Clothing with overcapacity in Europe, with a lot of competition in Asia, it’s hard to say overcapacity, because there is so much growth, but there is – there are lot of competitors there including emerging competitors. So, and that’s the predictor of pricing pressure.
John Franzreb
Okay, got it. And can you just update us on the composites initiatives as the automotive market obviously spoke about it sometime maybe an overview of some people – want to be helpful and where we stand?
Joseph Morone
Yes, so we keep talking about these three categories of growth opportunity and so, new business potential on existing aerospace platforms, on new aerospace platforms, and then, via diversification. The surprise, as I mentioned before, as I’ve expressed in the last couple of quarters that how much potential there is on the first of those, because we would have expected that to be pretty much washed out and it’s not.
There is a lot of growth potential there. Steve, in his questions pointed to what we see as the single biggest and potentially very large opportunity in the second category which is the potential for Boeing new middle of market aircraft and that is when you get a big new commercial platform that you get the opportunities, waves of opportunities as well as there is a scramble among suppliers to position themselves when that occurs.
And there will be opportunities both on the airframe and on the engine. On the diversification, we keep seeing opportunities to diversify across a diversity of fields from downward drilling, body armor to applications in the space, but we keep coming back to the same reality, nothing is as big a market for light weight impact resistant composites to think of a side impact being in a car, if you can make that lighter weight, but still impact resistant just the way of fan blades.
Our fan blades can resist a bird’s dry kit. You can see the potential application for the same kind of composites that we make on the automotive – in the automotive industry.
The challenge in automotive – we’ve discussed before is it has to get to a significantly different price point in order to break through a serious way. So, it’s the R&D we’ve been doing over the last two years in collaboration with people in the automotive industry as has been to understand how far down we can drive cost, particularly cost of the materials and how much degradation of material of performance that is the impact resistance do we get as we drive down the cost curve.
We are making good technical progress in that exploration, we are not yet at the point where we think it’s worth pushing hard on the commercial application, we see potential applications at the very high end, but they are one-offs and given – given all of the opportunity that we are seeing now in the aerospace side, a one-off application in automotive isn’t worth it. So, we – and this is some of the advice we are getting from the automotive – from the big OEMs too is, yes, what will turn their heads is when we can show a clear pathway from that high-end super-performing vehicle down to the middle of market.
And right now, our view is let’s continue to push on the cost performance through R&D until we see a pathway down into a larger part of the market before we start seriously considering the capital investment required on that side. So this is still R&D pro mode.
I think if anything has changed in the past year, it is on the hand, we made technical progress, but on the other hand the opportunity cost over on the composites, on the aerospace side look a lot bigger now than they did before. There is a target rich environment in the space we are already in and so it gives us more patience, if you will, on the automotive side.
So we are probing, but it’s looking more like a mid next decade commercial application than anything immediate. And we think it would be a trap right now to go after the early applications, because they are feeling like one-offs.
John Franzreb
Got it. Thank you, Joe.
Operator
All right. The next question is from the line of Greg Vasse, Times Square Capital.
Please go ahead.
Joseph Morone
Hey, Greg.
Gregory Vasse
Good morning, Joe, and John. How are you guys doing?
Joseph Morone
Good, how are you?
Gregory Vasse
Good, good. Hey, are you guys willing to, I guess, provide any color on the progression of AEC sales through the quarter?
It seems like, comps might get a little bit more difficult by the fourth quarter and additionally should we see revenue growth remain fairly linear from 2017 to 2018? Or should we start to decelerate into the end of 2018 as we start to comp some larger numbers?
Thanks.
Joseph Morone
Well, what we’ve said so far is, 25% to 35% full year growth between 2016 and 2017 and then another 25% to 35% full year growth from 2017 to 2018. And there should be – we haven’t guided, but that doesn’t get you the $450 million to $500 million with upside by 2020.
So there is clearly – so if you take those two numbers, and then project out to 2020, you will see there is still more growth there. So, there will still be positive comps.
We are – it’s a little difficult to math this business on year-over-year quarterly comps. We think it’s a much more reliable to look at full year comparisons 2016 versus 2017 versus 2018, because the actual flow through the year can be a little bit lumpy.
As we’ve seen in the past, Q4 has been a big quarter and I think that will become less of a factor and really just the demands on the particular timing demands on the ramps will become more of a factor that drives the sequential projection. For this year, clearly, if we are reiterating our 25% to 35% growth guidance, and we had $56 million of sales in Q1, we are going to have to be – to hit our guidance, we are going to have to be in the $65 million to $70 plus million per quarter range for the rest of the year and yes we will hit that guidance.
I reiterated that guidance several times today, so yes, that’s we do expect to see a step-up from Q1.
Gregory Vasse
Great, great. And given the AEC, what really had it stride until the end of the decade, when show up its full production valuing the segment is a little bit more of a DCF exercise at this point.
So, as such, what kind of EBITDA to free cash flow conversion should we be computing for full production?
Joseph Morone
Well, there are two – if you think about the free cash flow, I think you can take our guidance we’ve given on EBITDA to map out where EBITDA comes out in 2020. We’ve given you a range for Machine Clothing and we’ve said 18% to 20% EBITDA margins on $450 million to $500 million in sales by 2020.
So the variables to work with are essentially CapEx and changes in working capital, but the big one is CapEx. And unless we are seeing big waves of new investments as new programs come on, we are sticking with our estimate of average CapEx between 2016 and 2020 total company of $80 million.
And 2017 and 2018, it will be above $80 million, 2019 and 2020, it should be below $80 million. But just be conservative, take our projections of CapEx – of EBITDA for 2020, subtract out $80 million of CapEx, make some interest will be coming down, the taxes will be going up, dividends will probably be up a little bit, if the Board wants to go there.
So, you put all that together, there should be substantial free cash after dividends, after CapEx, after taxes in 2020, if we hit our targets, if we perform.
Gregory Vasse
Excellent, great color guys. Last one for me.
We are starting to reach a nice level of contract diversity within AEC and given the – still a fair amount of applications that can switch to composites in the future and you have a nice runway to higher content per plane or whatever it is that you’ll be putting the composites on. Would you be strategically disadvantaging yourself if you ever were to split these two businesses in the medium-term and lose that PMC cash generation that could be rolled in the AEC development?
So I am just wondering, should we think about if the opportunity is or even richer for you would that maybe prolong the amount of time that would make sense for both of your segments to stay together as a unified business, maybe just provide some color on that. Thanks.
Joseph Morone
Greg, first of all thanks for the – thanks for getting on the call and asking the questions. But, as John and I have tried to describe to – pretty much every investor we talk to over time is, that question about is a future structure of the company is premature for now at some point if you can model – if you do your models, it’s pretty clear by the end of the decade, AEC will be cash flow positive and ready to standalone and our Board will view those questions as it constantly does through the lens of how do you maximize the net present value of future shareholder returns.
We are all shareholders, that’s how we think about the question. And you can’t judge today where everything will play out in 2020 or 2019 or 2021 or whenever it is, but the two key points that are very clear in our minds, Machine Clothing is a great business.
It is a long lived business with – where you have an opportunity to generate serious value for your customers which translates into recurring cash flow. And a second concept that is firmly embedded in our heads is, we believe outside growth compared to market is the best pathway to long-term shareholder value.
And so the more pressure, the more opportunity we see for growth on the AEC side because a better the marriage between the two companies – the two businesses feels. And I am not trying to prejudge where we go, or how the Board would decide out there, but, this we like the cash flow and grow combination and if you can sustain one and accelerate growth in the other, that’s so far has led to really good returns for our shareholders over the last five years.
Gregory Vasse
Excellent. Take care guys.
Thanks.
Joseph Morone
Thanks, Greg.
Operator
Thank you. The next question is from the line of Jim Foung at Gabelli.
Please go ahead.
James Foung
Hi, good morning.
Joseph Morone
Hey, Jim.
James Foung
Came into the call late here. So apologize if the question has been asked.
But, Joe, I was just wondering, if you could just talk a little bit about the LEAP engines forecast has CFM kind of many changes to the engine forecast expect to go by in 2017 and 2018?
Joseph Morone
We talked a little bit about it, Jim. But, in essence, they have not changed.
James Foung
Okay.
Joseph Morone
It’s still 500 this year, I think 1100 next year.
James Foung
Right.
Joseph Morone
Then 1800 and 2000 plus. What’s interesting is, that there is market pressure to do more.
James Foung
Right.
Joseph Morone
And it’s coming from both sides. That’s coming from Boeing which is saying they are overbooked at their current ramp rate and could support more than 57 planes a month by 2019, 2020.
And Airbus, which has customers who are – needs - who are not being satisfied with the competitor to LEAP and so there is pressure there for more engines. But CFM, in our view to their credit have resisted those pressures because they know that this ramp is an unprecedented ramp and so their supply chain is already stretched.
CFM’s reputation is heavily built around reliability, delivery of performance that they promise. Their engines are in fact being delivered on-time and are hitting, the LEAP engines are hitting performance targets.
So, it’s more important to CFM to meet their commitments, meet their obligations, preserve their reputation then to stretch the supply chain to a point where they start running into trouble. But, that said, all of the market pressures are in the right direction right now.
But no, there hasn’t been any change to the ramp.
James Foung
So that’s a good problem for…
Joseph Morone
Yes, it’s a good problem.
James Foung
For you.
Joseph Morone
Yes.
James Foung
And could you just break out that $56 million in AEC sales? How much of that was just LEAP versus everything else?
Joseph Morone
$20 million was Salt Lake. 10-ish was our legacy business.
The rest was 25-ish with LEAP.
James Foung
Okay, right. Okay, and then, today there is an article on China…
Joseph Morone
Comac.
James Foung
Yes, potentially flying the Comac C919.
Joseph Morone
Yes.
James Foung
I assume that’s what engine they are using, if they are using the LEAP or CFM. I think they are using…
Joseph Morone
They are using LEAP.
James Foung
The LEAP, okay.
Joseph Morone
They are using LEAP. LEAP is the exclusive supplier for the C919.
James Foung
Oh, okay.
Joseph Morone
Which had its flight test today.
James Foung
Right, right.
Joseph Morone
So, LEAP is exclusive on Comac, exclusive on the Boeing MAX and shares the NEO with Pratt.
James Foung
So that’s another pause. I mean, did CFM factor in kind of engines for the Comac?
Okay.
Joseph Morone
Yes, it is.
James Foung
Okay, I mean, it remains to be seen how if they were to keep their schedule, I think entering to service is like, they talk about mix share or is it something or?
Joseph Morone
Yes, and Jim, I think the more important impact of the C 919, since CFM has built its engine ramp projections with the C 919 in mind, the more important variable to watch here is, if the C 919 starts succeeding and start pulling share from Boeing and Airbus, you will see reaction from Boeing and Airbus. And the reaction is going to be in the form – I think history teaches is in the form of innovation more pressure to introduce performance improvements on their engines or on their planes, more pressure to move forward with next generation single line – for example sooner than they had anticipated.
That kind of competitive pressure for a supplier like us who got a differentiated product usually leads to good things. That creates more demand for innovation, for higher performance, so.
James Foung
It’s another best way…
Joseph Morone
That will play out over next decade.
James Foung
Are you guys using opportunity to bid on new airplanes, I mean, should take a look.
Joseph Morone
That’s to the extent that C 919 becomes a disruptor enforces Airbus and Boeing to do more than they wanted, yes.
James Foung
If they became just a disruptor in China, would you most likely – what will happen versus the rest of the world? Is that enough of a change for Boeing and Airbus to be more in…
Joseph Morone
The Chinese market is the most important…
James Foung
Right.
Joseph Morone
Growth market in the aerospace industry.
James Foung
Right.
Joseph Morone
Than any other market, but if you look at Boeing’s and Airbus’s projections for the next 20 years of demand for aircrafts, there is replacements of existing aircraft and then there is passenger flight mile growth. And a lot of that growth and therefore a lot of the growth and demand is in Asia in general and China in particular.
So, yes, and they had modeled in, in their forecast the expectation that Comac would penetrate the markets with a certain amount if Comac overperforms and starts disrupting that market, yes, that’s something to watch in - with the dynamics of the industry next decade very carefully.
James Foung
Right, okay. And then just last one for me, just on the CH53-K helicopter.
So, that’s been proved – so they’ve got funding on that and just wondering, you talk about the long-term opportunity, but is there any near-term opportunity, like any impact to revenues in this year or next year?
Joseph Morone
No, that was – we’ve built into our estimate of $450 million to $500 million with upside in 2020, that assume the ramp rate that for the CH53-K that the Marines and Sikorsky have been talking about which is, but, one a year going to, three or four a year by 2020 getting to its full ramp up in 2023, 2024, and 2025. So, our investor package estimates $35 million to $45 million of revenue per year by 2020 growing to a lot more than that.
And once it’s fully ramped and this year, that program will probably be closer to 10-ish million, $7 million that will ramp from this year to 2020 and then from 2020 to 2024, 2025.
James Foung
Great, okay. Thanks so much.
That’s all I had.
Joseph Morone
Thank you, Jim. Thank you for the questions.
Operator
Thank you. At this time, we have no further questions in queue.
Joseph Morone
Well, thank you everyone for participating in the call and we really appreciate the questions during the call as well and look forward to seeing all of you between now and the next call and thanks again.
Operator
Ladies and gentlemen, a replay of this conference will be available at the Albany International website beginning at approximately noon Eastern Time today. Now that does conclude our conference for today.
Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.