Albany International Corp. (NYSE:AIN) Q1 2019 Earnings Conference Call May 1, 2019 9:00 AM ET
Stephen Nolan - CFO and Treasurer
Olivier Jarrault - CEO
Conference Call Participants
Peter Arment - Baird
John Franzreb - Sidoti & Company
Christian Herbosa - NOBLE Capital Markets
John Franzreb - Sidoti & Company
Christopher Hillary - Roubaix Capital
Ladies and gentlemen, thank you for standing by. Welcome to the First Quarter Earnings Call of Albany International. [Operator Instructions] At the request of Albany International, this conference call, on Wednesday, May 1, 2019, will be webcast and recorded.
I would now like to turn the conference call over to Chief Financial Officer and Treasurer, Stephen Nolan, for introductory comments. Please go ahead.
Thank you, Alan, 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 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 to GAAP. For the purposes of this conference call, those same statements also apply to our verbal remarks this morning. For full discussion, including a reconciliation of non-GAAP measures we may use on this call to our most comparable GAAP measures, please refer to both that earnings release as well as our SEC filings including our 10-K. Now I will turn the call over to Olivier Jarrault, our Chief Executive Officer, who'll provide some opening remarks. Olivier?
Thank you, Stephen. Good morning. Welcome, everyone, and thank you for joining our first quarter earnings call. I like first to welcome, Stephen, to the Company and to his first earnings call results. Stephen has more than 16 years of experience in operational and strategic finance. Most recently, serving as CFO for Esterline Corporation. Stephen brings to us an extensive experience within the aerospace and defense sector, and an impressive track record of strategic execution. His expertise will be of significant value to the Company. Q1 2019 was another very good quarter for Albany International as excellent performance continued across both businesses. Once again, we delivered strong growth. Total company net sales increased 12%, or 15% excluding the impact of currency translation effects. As you know, we are working across the business to improve profitability and that was reflected in dramatic improvement in this quarter's results.
Compared to Q1 '18, operating income grew by 136%, net income attributable to the Company by 281% and adjusted EBITDA by 22%. While this quarter did benefit from a handful of adjustments, both to long-term contract profitability and income taxes, our underlying performance was strong and puts us firmly on pace to achieve our long-term expectation. That performance is a testament to the people we have working for us and to their dedication to our company and to generating shareholder value. I have now been at the helm of Albany for just over a year, and I am thrilled with the progress we have made during that time.
My focus has been on ensuring that we have a solid foundation for revenue and profitability growth. Albany has a long proud history and has been an exceptional performer for many years. However, when I arrived, I realized there were several actions we could take to stabilize and enhance that foundation for growth. In particular, I have focused on four improvement levers for the business. First lever, driving improvements in operational metrics. In both our more mature Machine Clothing and our rapidly growing aerospace composite segments, labor productivity gains and overall equipment effectiveness improvements are the major drivers of our profitability.
We have enhanced our measurements and tracking of key operational matrix and we have introduced a relentless focus on operational excellence and productivity improvements through the deployment of a standardized disciplined operating system, which is driving profitability and value for our shareholders. While we certainly still have work to do here and have identified additional opportunities for improvements, I am pleased with the progress we have made to date.
Second lever, ensuring we have an engaged and energized team to deliver on our strategic and financial objectives. I joined a strong team at Albany with many talented individuals who have contributed to Albany's long track record of success. However, I also recognized a number of opportunities to upgrade the talent in several areas across a number of key roles and functions. Much of that talent already is now behind us, and I now have a team in place that I'm confident can successfully deliver on our strategy. I will continue to ensure my team is fully energized and engaged.
Third lever, increasing our focus on new business capture. While we continue to ramp up to meet the demands of the aerospace programs we have already won, it is important that we continue to aggressively pursue new business across the enterprise. While we already enjoy a number of technology leadership positions across both segments, we need to continue to invest in new product introductions and advanced process technologies. I have been very impressed with some of the new capabilities coming down the pipeline and look forward to discussing them publicly at the appropriate time. We have also established a new sales and marketing organization in AEC with the resources, executive support and demonstrated aerospace experience needed to capture key business opportunities. Fourth lever, strategic investments for the future.
We recognize that we are stewards of our shareholders' capital. We intend to be deserving of that responsibility. We will continue to look for opportunities to invest for long-term growth and profitability, whether that be internally through capital expenditures or externally through acquisitions. We are proud of the investments we're continuing to make in expanding our capacity and capability, most notably to meet the ramp-up demand of our aerospace composite programs.
We believe that the returns that our shareholders will enjoy for decades from those investment will more than justify their cost. We're also actively looking at inorganic growth opportunities to expand our manufacturing capabilities, broaden our technology and product offerings or strengthen our ability to serve our customers.
However, our hurdle for such investment is high. We will be prudent acquires, only executing on an acquisition when we have convinced ourselves that it will create value for our shareholders and that we fully understand and properly manage the associated execution and integration risk.
Turning now to the current state of our business. I am pleased to report that not only is the global aerospace market still strong, our aerospace composite business is performing above market levels. Compared to Q1 '18, AEC net sales grew by 31% or by 33% when excluding currency translation effects, a remarkable achievement.
We continue to be on track to meet the full-rate production demands of our key programs including LEAP, Boeing 787, F-35 and CH-53K. As I walk the floor of our plants, I am thrilled by how far we have come in building out and demonstrating our ability to meet rate production. Our focus now is not only meeting the ramp, but also continuously improving profitability.
In terms of Q1 profitability, AEC delivered 19.1% adjusted EBITDA margin for the quarter. This is somewhat ahead of our expectations driven by improved net productivity savings and also helped by a favorable net change in the estimated profitability of long-term contracts. We continue to expect to deliver between 18% and 20% adjusted EBITDA margins for the full year of 2020.
We are all aware of the challenges Boeing is facing with the 737 MAX program, to which we are a key supplier through our joint venture with Safran on the LEAP engine. We are encouraged by the public announcements of Boeing's progress in addressing the underlying issue, and we are pleased that Safran has indicated that there is no current plan to change their LEAP-1B production schedule. As a result, we are not projecting any change to our forecast for production of LEAP-1B fan cases, fan blades and spacers. We have been very pleased with our long-term partnership with Safran, and the LEAP program remains a key strategic focus for Albany. We continue to invest in R&D, a new business in AEC.
As I have said previously, we continue to focus on our new product development projects, leveraging existing, derivative, and new technology. And on our process improvement projects, which aim to optimize our operational performance across AEC. Turning now to the MC business, where we also did very well this quarter. Globally in the marketplace, we continue to expect board and packaging, tissue and towel and pulp grades PMC sales increases to more or less offset declines in publication grade PMC sales.
Fortunately, we are very well positioned with strong market share and profitability in the growing product grades. For the full year 2019, we previously indicated that we expected revenue to be relatively flat for the full year when compared to full year 2018. While we still expect that to be the case, growth in Q1 at about 5% was strong compared to a relatively weak Q1 in fiscal year '18. We're very pleased with our profitability in the quarter delivering almost 12% improvement in adjusted EBITDA.
We do face challenges in this market, primarily due to pricing pressure and rising input cost whether those be labor or raw materials. We rely principally on continuous improvement, manufacturing initiative, superior customer service and technology leadership to continue to drive profitability in this business. With that, I would like to turn the mic over to Stephen, who'll provide more details on the quarter and our guidance for the full year. Stephen?
Thank you, Olivier. I would like to thank everyone, for joining us on the call this morning. It's great to be here at Albany. As I mentioned in the earnings release last night, I've been incredibly impressed by the people I've met in my first month here, and I'm thrilled to be able to present such good results this morning. I will talk first about the results for the quarter and then give a brief update to the guidance for fiscal '19 that was provided as part of the Q4 fiscal '18 earnings call. For the first quarter, total company net sales were $251.4 million, an increase at 12.4% over the $223.6 million delivered in the same quarter last year.
Adjusting for currency translation effects, the growth in net sales was 15.2%. On the same organic basis, excluding currency translation effects, MC grew at 4.8%, primarily driven by growth in tissue and packaging grades globally, and in the North American market across all major grades. While AEC grew at 33.1%, primarily driven by growth in the LEAP and CH-53K programs.
First quarter gross profit for the Company was $91.8 million, an increase of 18% over the comparable period last year. The overall gross margin rate increased by 170 basis points from 34.8% to 36.5% of net sales. Within the MC segment, gross margin rate improved from 46.8% to 51.6% net sales due to higher net sales driving increased fixed cost leverage and improved labor productivity.
Within AEC, the gross margin rate improved from 14.1% to 16.1% of net sales driven by higher net sales driving increased fixed cost leverage, improved labor productivity and a favorable net change in the estimated profitability of long-term contracts.
First quarter selling, technical, general and research expenses declined from $52.2 million or 23.3% of net sales in the prior year quarter to $51.2 million or 20.4% of net sales in the current quarter driven primarily by lower losses from the revaluation of nonfunctional currency assets and liabilities in the current quarter, partially offset by an increase in corporate expenses, due primarily to CFO termination costs.
Total operating income for the Company was $40.1 million, an increase of 136% from $17.0 million in the prior year. MC operating income grew by 64% to $44.2 million driven by higher gross profit and lower STG&R, while AEC operating income grew by 319% to $9.5 million, also driven by higher gross profit and lower STG&R. These improvements were partially offset by an increase in corporate expense as described earlier.
The income tax rate for the quarter was 20.3% compared to 29.9% in the same period last year. The reduction was driven largely by discrete items, which drove the rate lower than our expected 29.4% rate on an ongoing basis. Net income attributable to the Company for the quarter was $29.2 million, an increase of 281% from $7.7 million last year. The increase was driven by improved operating income and the lower tax rate.
Earnings per share was $0.90 compared to $0.24 last year. After adjusting for restructuring expenses and the impact of foreign currency revaluation gains and losses, adjusted earnings per share was $0.87 this quarter compared to $0.47 in the comparable period last year. Adjusted EBITDA grew 22.3% from last year to $57.6 million for the current year quarter. MC adjusted EBITDA grew from $45.2 million or 31.9% of net sales in the prior year quarter to $50.5 million or 35% of net sales this year. AEC adjusted EBITDA grew from $13.5 million or 16.4% of net sales last year to $20.5 million or 19.1% of net sales this quarter.
Turning to our debt position. Total debt, which consists of amounts reported in our balance sheet as long-term debt or current maturities of long-term debt, decreased by almost $34 million to a balance of $491 million at the end of Q1, and cash reduced by about $10 million during quarter, resulting in an reduction in net debt of about $24 million. However, these decreases in total debt and net debt reflect reduction of almost $26 million of lease obligations out of long-term debt due to the implementation of ASC 842.
As you are no doubt aware for a variety of reasons, including the payment during the quarter of incentive compensation, our first quarter has traditionally been a quarter with lower-than-average cash generation. This year our working capital initiatives resulted in a significant improvement in cash flow from operations. While in the comparable period last year, we had to use of cash of almost $19 million, this year we generated almost $25 million in net cash from operating activities.
Payments for all capital expenditures in Q1 fiscal '19 were about $21 million, reflecting continued investments in equipment to support multiple ramp-ups in AEC.
Looking forward to the full year, we previously provided guidance that MC revenue would be relatively flat to fiscal '18 and that it would generate between $195 million and $205 million of adjusted EBITDA. And we indicated that AEC would generate 20% to 25% of revenue growth with improved adjusted EBITDA margins from fiscal '18.
Assuming no significant changes in global economic conditions or currency rates, or significant unfavorable change in Safran's LEAP production schedule, we still believe that our segment guidance holds.
In addition, this quarter we're providing guidance for additional corporate metrics consistent with that prior segment guidance. For the full year of fiscal '19, we expect that at the Company level we will generate revenue of between $1.05 billion and $1.08 billion; adjusted EBITDA after incorporating both prior segment guidance and corporate expenses of between $225 million and $240 million; effective income tax rate including tax adjustments this quarter of 27% to 29%; capital expenditures of between $20 million and $25 million per quarter; depreciation and amortization of between $70 million and $75 million; earnings per share of between $3.08 and $3.38; and adjusted earnings per share of between $3.05 and $3.35.
With that, I will pass the call back to Olivier for further comments.
Thank you, Stephen. As indicated by the guidance Stephen just provided, we continue to feel very good about the year. And are very confident in our ability to deliver the segment results I discussed on the last call.
MC is performing well in a challenging environments with markets and input cost pressures that is more than awarding its own. AEC is ramping up production and moving down the learning curve, putting them in a very strong position to hit the 2020 objective we have established for them. Overall, I feel very good about the business and our ability to hit our expectations. With that, let's go to the line for any questions. Operator?
[Operator Instructions]. Our first question will come from the line of Peter Arment from Baird.
Olivier and Stephen, thanks for the good results starting the year. I guess, Olivier, to, I guess, get a little more specific on the 737 ramp. So Safran has been indicating that there is no change in plan. So maybe if you could just give us a little color that you are planning to be at a higher rate either in second half of this year, which previously was 57 a month? Or where that stands, at least, from your perspective?
Sure. And thank you very much for being here with us. Listen, as I was explaining, I mean, you understand I cannot comment really on Safran's future potential plan and Safran is our customer, our main partner and -- as you just pointed out, we follow their guidance and we follow their requirements. So I can restate once again that Safran has communicated to us many times in the past few weeks. They have reassured that they no current plan to change the LEAP-1B production schedule.
They're really consistently indicating to us that they will not change any production schedule nor any ramp requirement. You certainly also listened to Mr. Petitcolin last week during the Safran earnings release. And so he reiterated the fact that the CFM division had maintained the production rate for the LEAP-1B at this point, and will undertake only temporary adjustment only if necessary. So for us what does it mean?
It means that you just pointed out that we continue to drive our ramp-up across our global manufacturing footprint to meet the ramp-up requirements of the 57 -- right, the 57 -- that Boeing had in mind prior to that -- to that drop, right? So there we are really pushing -- executing on the plan that we had devised for the year. I'm very, very happy about the progress we've been making in Q1 across fan blades, across fan cases, across spacers versus Q4, and we are going to execute on that ramp-up as planned. We have already indicated that we will be explaining all the indicators in place to follow and track our progress -- our ramp-up progress on a daily basis. Okay?
Okay. That's great color. And just as a follow-up, you mentioned on kind of your 4 strategic initiatives around driving operational metrics, both at MC and AEC. Is there any kind of metrics that you want to call out on, like at least the gains you're seeing on labor productivity or you're on the equipment side?
All we are seeing, it's quite interesting. As I was explaining you a little bit earlier, right, in the year, I mean, we have developed a system at AEC, which we are by the way spreading across the MC as well more and more as we speak, to track down our labor productivity on a daily basis, by flow path, by segments, and of course, by plant. And every day I have a call at 1:00 for two hours, with all my plant managers to drive and dissect and understand the products we're making versus a day before versus a week before, right? It's all labor productivity, labor utilization and labor efficiency.
And when you reverse back to the assets -- to our key assets, our looms, our ovens, our auto clears, our key pacing assets, it's all about effectiveness. So I'm seeing quarter-over-quarter very nice gains of about 2%, 3%, 5%, 6% depending on the flow path and depending on the effects, right? So it's pretty interesting to track and we'll become more and more transparent about it once we have the entire system free, organized that way and track it. But I'm very encouraged. That's why I was saying, I'm extremely encouraged with the progress we have been making in the past quarters, okay. And it will continue as we speak in the next -- in the following quarters, right?
Our next question will come from the line of John Franzreb with Sidoti & Company.
My first question is regarding your initial EPS guidance. If I kind of understand some of the puts and takes, it may suggest you're looking at a lower overall gross margin profile for the balance of the year than you achieved in the first quarter. If I'm right in that assumption, is that because maybe Machine Clothing over-achieved? Or is there something else, some other operating expense that's going up and that I'm not cognizant of?
Well, I mean, let me -- and Stephen will jump into it as well, but let me go back to the fundamentals. You know, we had a very good quarter in MC, very good first quarter as I pointed out. You noted the increase in revenue year-over-year. But just Q1 which was remember very well. We did discuss Q1 was relatively weak, right. Q1 '18 was relatively weak quarter, right? So we had a 5% increase [indiscernible] in volume year-over-year that, of course, rolled, increased, fixed cost leverage. We had some normal, good very strong labor productivity improvements. We also did benefit from the restructuring. Remember, we restructured the Sélestat, France in front of the French plant. And we also saw some nice -- some favorable, I would say, year-over-year, favorable pricing, favorable mix, right, year-over-year, right -- in Q1 '19. So -- we saw as an example, we saw some nice increases in packaging grades PMC sales, across North America, South America, even Europe or the flat in Asia Pacific.
All that was driven by some good quarterly, some good seasonal orders. We saw, from a mixed standpoint, a pretty nice increase in our tissue grade PMC sales in North America, in South America, in Asia Pacific, all driven by consumptions. And you can revert to publication grades. You know, our first quarter from a mixed standpoint was not that bad either, because we saw in North America and in Europe a slight increase in our publication grades PMC sale, driven by some very specific, if you will some specific orders, that may or may not duplicate -- replicate in the next quarters. And any way, that would all offset on the net business, more than offset by a decrease in Asia Pacific and South America. So you know that would explain weak Q1 last year relatively, some nice labor productivity improvements and a good mix of, a good favorable mix in price.
So now, excellent performance. We did deliver $50 million, about $50 million of EBITDA versus $45 million last year same quarter. And our guidance is about, like I already said, $195 million to $205 million, much high for the full year, much higher than the historical range of $180 million to $195 million.
Now, look, there is absolutely no increase in cost is coming at all. We're just looking, we're continuing basically to execute and to drive productivity quarter after quarter. If you look at the, if you look at the year '19, like I said last, couple of months ago, you look at the year '19 versus '18 from a macroeconomic standpoint, it's clear. As you know, the world growth is projected to be slightly less in '19 than it was in '18. I think it's 3.3% versus 3.6%.
In '18, will come back right in '20. But you look at China, you look at environmental pressure in China, you look at the trade tension between U.S. and China, you look at the political uncertainties.
In France [indiscernible], you look at, you know, you look at what's going to happen in Germany. You look at Brexit, all that makes us think, and not only us, but all of us in the industry that the overall, the production of paper and paperboard in '19 will be less than what it was in '18, for the full year.
However, looking at the long-term, 2018, 23 we still has, we see just published recently, we continue to think that we can expect CAGR rate of about 1, 1%, say 1% to 1.5%, even 1.5%, right, year-over-year, each year until 2020, right? So we have little bit of a GDP, right, world growth impact on the demand.
Now if you look at the '19 PMC market, right, how does it translate? It's always good to take a good look at the market globally, right? But not for PMC, I'm switching from paper, to PMC market. So the U.S. PMC market, which is our largest market, seems to be more or less stable, continued growth in packaging and tissue growth. We've seen some machines and packaging machines slowing down in Q1 on, purpose slowing down. And but still offset by a continuing decline. However, slowing down somewhat in the publication grade consumption.
Pushing to the Canadian PMC market, same story that shared with you earlier. We continue to see the market shrinking, mainly due to a continued publication grades consumption decline, especially newsprint.
Resident PMC market, even though economy is good there, we think it will decline over to year, due to the fact that we don't foresee any, no, any new significant machine start ups, as we saw last year. And with a slowdown of export of pulp grade into China because of the ban on import, I think you have heard of. So we think the Boeing market will be declining, PMC market, will be declining for the full year when compared to '18. And now if you switch to the European PMC market, same, if you will, same story, it will continue to drive. As a result, as I explained already and that you know very well, a slight growth in the packaging great consumptions with a lot of machine conversions from printing and writing to packaging. And also no new tissue grade machine start-ups.
And the Chinese market, more or less stable. I mean, South Asia market more or less stable, Chinese market shrinking and due to the environmental issues. However, good thing going forward we think that they are with, as you certainly read, we read and we know that they might be some -- there are some plans to install new packaging machines in '21 through '22 in Southeast Asia, in Malaysia, Indonesia. So we understand the PMC market, while we all -- just share with you all.
So what I'm going to do about it. It's our plan for the balance of the year, tool technology approach that we have already deployed in the past, to basically again share -- again share in the growing -- packaging issues, in order to somewhat offset this weaker demand on the PMC side. So therefore, I continue to reiterate our guidance, $195 to $205, as a result of the combined effect of reduced volume versus for the balance of the year versus last year. We have labor inflation peeping at us, you know, and -- but all that will be offset as much as we can by net productivity gain -- manufacturing gains. We have some raw material inflation as well that we are fighting. And maybe some product mix year-over-year. So that's what I think that the performance of MC in '19 I reiterate would be very full -- $185 - $205, once again much higher than the historical range-- of $180 to $195. Stephen, would you like to add anything?
John, so -- as I look at the margin for the full year, if I look at the EBITDA margin, while recognizing we provided range for both EBITDA guidance and net sales guidance for the year.
At the midpoint of those ranges just for - to pick a point, it equates to around about 22% adjusted EBITDA margins. For Q1 we delivered 22.9%. So slightly higher than our guidance for the year. As 2 things to call out though. One, as we noted in our remarks earlier, we had an adjustments to the probability of some long-term contracts within AEC. You will see in the queue that will be filed later today, that was about a $600,000 benefit within the year. So take that as a benefit to Q1 compared to the rest of the year. And then secondly, within MC, we had called out, but we expected it to be relatively flat net sales for the year compared to last year. Obviously, Q1 is up compared to Q1 last year, which implies Q2 through Q4 will be slightly down compared to last year, just in total.
With a little less fixed cost absorption as a result, so you add those together. You really explain the kind 100 basis point difference between our guidance for the full year and our Q1 results. So I don't think there's something unexpected coming at us later in the year that's resulting in a lower guidance for the year in Q1. As we look at it, it's fairly consistent -- the full year is fairly consistent with what we would deliver in Q1, absent those 2 kind of onetime benefit we got in Q1.
Okay. And then just one question and you can answer this quickly. Historically, Q2 has been stronger than Q1 for PMC. Were there some jobs -- unusual jobs last year that result in that not being a dynamic this year that Q2 will be flatter down versus Q1 this year? I'm now talking in terms of revenue.
Yes. John, so two things I'll say to that. One, certainly this year we have a stronger Q1 than we've had in a couple of years. And that was driven by a couple of events -- a couple of significant customers who took -- who had some line start ups during the quarter resulted in a very solid Q1. We don't provide quarter guidance. So I can't give you an exact guidance for MC revenue in Q2. But certainly, this Q1 was stronger than we would typically expect. And look, that's supported by the share of the revenue, if you look just at our guidance of revenues for the year flat to last year and how much of that guidance we delivered in Q1. That's more than we would traditionally have expected to provide in what you pointed out as a seasonally weak Q1. So I think the general trends we see will hold this year. But this was a particularly strong Q1.
[Operator instructions] We'll go next to the line of Christian Herbosa with NOBLE Capital Markets.
I just got a couple of questions. First, as you mentioned in your comments, operating income margins in the AEC segment has improved significantly. What do you attribute that success to you -- mostly in? And how high do you think those margins can grow?
Yes. Definitely, AEC -- when we look back at the performance over the past couple of years, we keep on improving in a very, very fast pace. You saw, I think, '17 was about $31 million of EBITDA once you exclude some unfavorable exchange in estimated probability of some contracts, or 11% of EBITDA margin. We grew it to 60 -- $20 million of EBITDA last year or 17.1%. We just delivered 19.1% in the first quarter. Once again, as Stephen reminded us, we had the net benefit - favorable benefit of a challenging -- profitability of some contracts. But still the performance is very strong. I'm very encouraged with it, and it's basically due to pure, as I was explaining, deployment of a standardized daily operational financial system, driving productivity gains, driving the labor efficiency, driving down our -- even though our cost, our nonquality cost, and ensuring that we minimize our key effects, the downtime -- unplanned downtime. And really focusing at the asset level at the employee level, and making sure that we continue very strongly deploying what I call an overall a very strong continuous improvement program Six Sigma driven. So that basically you see in here really a -- that the deployment I would say of manufacturing operations, aerospace one-to-one in order to boost that profitability. And as we are, as I was explaining, we have a huge potential to continue boosting that performance. So I reiterate my guidance. In here, we said that we would drive in '20 revenues of $500 million to $550 million and remember we just increased a quarter ago. And that we would drive towards an 18% to 20%. That way the position is very well in the $90 million to $110 million of EBITDA. And I feel very encouraged based on last year and again first quarter, very encouraged about our ability to deliver that range in '20.
And then later on past '20, of course, keep on growing that revenue, that volume and improving our productivity. Right? Okay?
Okay. Great. Thanks for the color. You also mentioned in the comments that your working capital management initiatives on improved current cash generation. Can you expand on what those initiatives are? And how they work?
Sure. Sure. I mean we, part of the management of operations, especially on the aerospace side, has been since I joined to really focus, if you will, on working capital efficiency. If you track year ago our Q1 '18 working capital efficiency versus our Q1 '19 working capital efficiency, as expressed in days of working capital, because metrics have been deploying with my team across our plants, you would see that March '19 QTD versus March '18 QTD, we roughly improved orders by 20%, roughly. So very nice project improvement. We can do much more, and we'll continue to do much more.
The daily focus on AR on receivables. The daily focus at each plant across the system MC and AEC on APs and of course, more and more focused and we'll continue to gradually improve the efficiency of our inventories, a big focus on manufacturing inventory on raw materials and LEAP and finished goods. So you saw that nice progress we did generate, as Stephen mentioned. I was very pleased with it. $25 million of cash from Ops versus the use of $18 million last year. That's a first, that's a very, it was very good for us, we're very, very proud and I thank all my team to be able to deliver it. And you'll keep on seeing quarter after quarter even more and more focus on improving the efficiency of the working capital. Okay?
We now will go to line of John Franzreb for a follow-up call with Sidoti & Company.
Olivier, you've mentioned, you've got the team in place that, that you want now. In previous calls you've mentioned, you want to be more aggressive in organic growth. Can you kind of give us an update of what you're looking as far as acquisitions? What kind of targets you think are most appealing, anything along those lines would be helpful?
Sure. Listen, you understand that we don't, of course, we don't comment publicly about any strategic potential funding transaction. But, listen, it's clear as I've already said in the past that we continue to explore, how could I say it, potential inorganic targets. Whether we would act on any of them depends, of course, on a variety of factors. How each of those targets would basically strengthen our position in the supply chain? How each of those targets would enhance our long-term market positioning? How each of these targets would basically, I mean, the level of returns that each of those targets could bring?
And of course the value that they would trade for shareholders? So we're exploring. And -- but as I said a little bit earlier, we would be very prudent acquires. I have lots of experience myself into making acquisitions, Stephen as well. And we know what it takes, and we are capable of, if you will, really assisting. We will move only and only after having really accessed that we can integrate properly and we can generate, the net synergies and the returns. So that's all I can share with you.
Is there a specific size of an acquisition you are looking at? Is this something of a smaller scale or larger scale or tuck-in? What are you thinking about how willing you are to lever up to purchase something?
So -- generally, we have said before, we would ideally like to look for businesses with revenue of above $100 million. Just below that -- it ends up being almost as much work without the real needle-moving impact on the Company. That said we are going to be prudent at the upper end, I would not see us levering up to -- to what you would consider high levels to execute on very significant transactions.
I think they are going to be in that in a relatively narrow band, probably north of $100 million. Not that we would not look at something below that if it had particularly unique technology or capabilities but somewhere in the north of $100 million, but that the upper end is not certainly in the hundreds and hundreds of millions of range. We're not going to lever up to the level required to execute to transaction of that size.
I think it's a very good point, Stephen. It's -- in one point, I'd like to reiterate on that point, that we are really, really focused on the IT, on the high technology type acquisition, bolt-on acquisition, high IT, high technology, proprietary product end-process type company.
We'll next go to line of Christopher Hillary with Roubaix Capital.
I just wanted to ask, you had extensive comments on productivity improvements that you see in your pipeline and you also talked a bit about how much you upgraded the talent of your team. Do you anticipate that expressing itself in your margins going forward because it just seems like you have a rich opportunity set for material improvements based upon the comments I was hearing today?
Yes. Look, we have delivered significant improvements in margin. One thing you do need to recognize from productivity perspective, right now a significant program for us is LEAP with our Albany Saffron Composite joint venture, of which we are the 90% owner. The way that contract is currently structured, it is a cost plus type contract. So as a result, the productivity improvements we're driving there are in a perverse way actually reducing our revenue, but they're getting us down a curve we need to get down to, to make ourselves competitive and secure the long term future of that, but also step up to the profitability if we hit certain price targets on that program.
So some of what you're seeing in terms of productivity improvements are not hitting the bottom line right now. However, that said, as Olivier mentioned in his comments a few moments ago and I think it's quite clear, if you look at the profitability of the aerospace composites business most notably, but even of the Machine Clothing business, there have been significant improvements in profitability over just the last 12 months, and I think we would expect that to continue to improve on the AE side, getting us solidly into that 18% to 20% range on the adjusted EBITDA margins in fiscal '20.
Yes. That's a very good point. In addition to that to go back to talent that you just mentioned, talent additions, and reverting back to the aerospace business, one thing that -- and I can't give you more details about it publicly because it is not allowed to yet. But I mentioned that we reorganize ourself. In fact, we know the foundation for a good strong dedicated, experienced aerospace commercial team. It paid off already. We -- you will see in the next few weeks when we allow to announce it.
But we recently successfully negotiated the extension of one of our key long-term agreements, serving -- supporting one of the highest high key -- high growth platforms for 5 more years -- an extension of five more years. And in addition to that, we're able to expand our work share on that particular high growth platform. So more details to come, but we're very pleased really in that equation of the things that we are doing to improve talent, organize ourselves on the aerospace side to grow organically. And therefore a good margin and to bring profitability up. So I'm very encouraged again by our commercial success this quarter.
We have no further questions in queue at this time. Please proceed.
All right. Again, well, thank you. Thank you all for joining us on the call. We do appreciate your time today and your continued interest in Albany International. I'd like to conclude today's call by recognizing my entire Albany team for another very strong quarter of performance. Thank you all.
Ladies and gentleman, a replay of this conference will be available at the Albany International website beginning at approximately noon eastern time today. That does conclude our conference for today. Thank you for your participation. You may now disconnect.