Q3 2024 AirBoss of America Corp Earnings Call

I would now like to turn the meeting over to Mr. Grant shock?

Chairman and co-ceo please. Go ahead Mr. Shock.

Thank you, operator. Uh, good morning everybody. And thank you for joining us for the Airbus third quarter, 24 results conference call.

My name is Grant shocked. I'm the chairman and co-ceo of airboss.

With me today are crisp bits of cacus. Our president and Co CEO.

Frank and Tilly our coo.

Chris Miguel our EVP, and general counsel.

Our agenda today will start with a review of the operational highlights of for the quarter followed by a discussion of our financial results. Before we open the conference line to questions. Before we We Begin. I would like to remind listeners that our remarks today contain forward-looking statements, including our estimates of future developments. We invite listeners to review the risk, factors related to our business, and our annual information forum and our mdna, both of which are available on Sedar Plus on our corporate website.

Also, we will discuss certain non-gaap measures including habitat. Reconciliations of these measures are available in our mdna.

Finally, please note that our reporting currency is in US dollars.

therefore reference those today will be in US Dollars unless we indicate otherwise

with that, I'll turn the call over to Chris.

For operational review.

Thank you, grant and good morning everyone. During the quarter, we were encouraged by the commencement of shipments under the previously, announced the Bandelier contract and the awarding of the isolation gown. Contract from AGS, which we believe both points to Rebound in our defense product line businesses.

Since earlier this year, adg has been awarded over 150 million new contracts, which will be going into the backlog in the 2025 and Beyond. And those results will be impacting our Airbus manufacturer products going forward.

In response to in response to the current economic headwinds that continue to impact each segment, the company continued its risk mitigation Plans by managing costs while focusing on continuous Improvement. Efforts the offset. Some of the pronounced softness experience, in both, airboss rubber Solutions and in the rubber molded products business within airboss. Manufactured products management expects, volume recovery to commence in early 2025 subject to inflationary pressures and the global geopolitical climate as well as the successful conversion of key opportunities.

Although ARS had a strong quarter in terms of margin expansion, relative to the third quarter of 2023 the segment, experienced additional softness compared to the second quarter of 2024 primarily driven by volume reductions across most sectors and saw reduced volumes compared to 2 Q3 of 2023.

Despite strong performance during the early part of 2024, there was pronounced softness carried over from Q2 of 2024 as sales were impacted by customers focused, on reducing inventory levels through extended summer shutdowns.

The segment remains committed to executing on its strategy to deliver strong results with specialized products, expanded production of a broader, array of white and colored compounds, and enhance flexibility in attracting and fulfilling new business through identified synergies and margin expansion.

As a segment, ARS continued to invest in research and development to support enhanced collaboration with customers and a continued growth in the specialty compounding Market, which we can now demonstrate in terms of the margin expansion that's been, uh, that's been reported.

Amp experienced continued softness. In Q3 2024, in the rubber molded products, part of the business, with some significant progress generated in the defense business,

The rubber molded products operations were impacted by continued. Volume softness related to the original equipment, manufacturers or oems.

uh, having seen them shutter production to rebalance vehicle inventory levels, which has been ongoing throughout 2024

The business continued its focus on managing costs and a commitment to drive efficiencies and best-in-class automation, as well as diversification of its product lines into adjacent sectors, the defense business experience and positive traction during Q3 of 2024, which is expected to continue into next year and Beyond supported by the commencement of deliveries on some previously announced contracts and additional overhead. Reductions carried out earlier this year to help mitigate the volume softness that was occurring earlier this year.

Management. Also continued its focus on operational, improvements during the quarter and continue to work with its key customers with the goal of leveraging opportunities, aligned with its growth initiatives.

The company's long-term priorities Remain the following.

Focusing on Innovation and customer rubber compounding while aiming to expand market, share.

Through organic and organic means while driving to achieve enhanced diversification by broadening.

By the broadening of product depth, technological advancements and investment in specialty compound niches.

Manufactured products, growth strategy will be focused on diversifying expanding its range of rubber molded products. While simultaneously narrowing the range of Defense products through a renewed focus on core competencies

And finally, execution of the Strategic review of all product lines, currently, manufactured, and sold, by the company in its manufactured product. Segments, while targeting additional acquisition opportunities with a focus on adding new compounds and products, technical capabilities and geographic regions of selected North American and international markets.

Airboss continues to focus on these long-term priorities while investing in core areas of the business to expand a solid foundation, that will support long-term growth. I will not pass the call over to Frank for the financial review, right?

Thanks, Chris and good morning everyone. As a reminder all dollar amounts presented today are in US dollars, percentage changes compared Q3 of 2024 to Q3 of

2023. Unless otherwise noted to be respectful of your time today, I will be brief in my summary of our Q3 2024 results.

Starting from the top are bosses Consolidated net sales for Q3 of 2024 were 96.2 million, a decrease of 5.9% from the prior year.

Due to lower volumes at ARs and lower sales at amp's rubber, molded products business, partially offset by higher sales, and the defense products business.

Consolidated gross profit for Q3 of 2024 increase by 2.3 million to 16.1 million compared to Q3 of 2023. This was driven by improved volume and mixed AT&T specifically in the defense business partially offset by additional softness experience and the rubber molded products operation, along with additional softness across the ARs customer sectors.

Turning. Now to our individual segments, net sales at ARS for Q3 of 2024. We're 54.5 million. A decrease of 6.7% compared to Q3 of 2023. ARS experienced the volume decrease of 17.5% with declines in most sectors. Tolling volume was down. 74.3% while non-polar volume was down 8.2%.

Gross profit within ARS for Q3 of 2024 was 8.3 million which was consistent with Q3 of 2023.

This gross profit remained in line with the prior year on Lower volumes, primarily driven by margin expansion. Strategies product, mix management of controllable overhead costs and continuous Improvement initiatives.

Net sales for Q3 of 2024 were 45.5 million. A decrease of 5.7% compared to Q3 of 2023. The decrease was mainly in the rubber molded products, business offset by improved sales in the defense products business. Specifically, the rubber molded products business had lower volumes in SUV and Light Truck platforms driven by economic headwinds and increased vehicle inventories which impacted production schedules across certain oems and Tier 1 suppliers in the quarter.

Gross profit within amp, for Q3 of 2024 was 7.8 Million compared to 5.6 million in Q3 of 2023.

This was primarily the result of improvements in the defense products. Business operational cost improvements and reduced overhead costs, primarily offset by unfavorable volume and product, mix in the rubber molded products operations.

Cash used in operating activities during Q3 of 2024 was 1.1 million compared to 8.7 million provided in Q3 of 2023.

During Q3 of 2024, the company invested 1.6 million in Capital Equipment versus 1.5 in Q3 of 2023.

Capital expenditures were related to growth initiatives and maintaining existing plant and equipment.

by the end of Q3 of 2024, our net debt, balance was 97.2 Million versus 888.2 million at the end of Q4 of 2023,

We expect to fund the company's 2024, operating cash requirements, including required working, capital Investments, Capital expenditures and scheduled debt. Repayments from cash, on hand cash, flow from operations and committed, borrowing capacity. Our current revolving credit facility provides, financing up to 150 million

At the end of Q3 of 2024, 112.4 million was drawn against this credit facility with that. I will now turn the call over to Chris Chris.

Thank you, Frank operator. At this point, we can open up the line for a Q&A.

Time by pressing star 2.

Please press star 1 at this time. If you have a question,

the first question is from Ahmed Abdullah.

Please go ahead Mr. Abdullah

Yes. Hi, thanks for taking my question. Uh, so on the rubber side, obviously volume pressure continues. However, you communicated that, you expect a volume recovery in the early part of 2025. Can you give us some more color around what visibility you have around this expectation and what you're seeing or hearing out there in that regard?

Yeah. Certainly uh at this point in time um much of what we're uh being told is is somewhat anecdotal from our, our top customers. Uh and we're hearing from them that they expect a rebound in their end markets, as they're seeing seeing greater order intake uh as they close out going into Q4. So at this point, it's still anecdotal because we we serve so many different kinds of markets. Uh, and we don't have let's say long-term, uh, releases um, we have uh, ongoing weekly conversations with all of our top 10 customers. And generally, this is, this is uh the information that we're being given at this point in time, for their end markets.

Okay, thank you for that color. And, uh, I mean, the softness and ARS was driven by inventory, reductions as you've alluded to, uh, are these inventories that your customers right now, approaching normalized levels? How far do you think you are from that?

Yeah, I think we expect uh some continued uh softness in Q4 uh and again in in in in depth conversations with our customers. Um during July of this year, several of our customers took extended uh summer shutdowns in order to reduce inventory. And uh normally speaking as they get into December and this has been

Kind of ongoing year after year and going into December and over the cutoff for their, their year end. They try not to carry a lot of inventory. Um, which is why we expect some continued softness. But again, uh, normally what happens is, uh, early in, in the first quarter, then they have to try and rebuild up some of that inventory. And given the fact that, uh, several of our key customers are seeing higher order intake than they've seen for the last couple of quarters. Um, that's been, uh, sort of the basis for our understanding that, that things should start to recover.

Okay thanks. Um, Towing volumes are continuing to drift lower? Um, is there a market shift here that's causing clients to steer? Clear of a tolling order versus non-toxic more focusing on the non-toxic side due to better margins or something along those lines.

It's actually, uh, both um, in terms of the actual tolling Market, we haven't really lost market, share to our custom compounding competitors. Um, as the industrial base has been relatively slow, the tire companies have been insourcing their own rubber compound into their own captive capacity, for rubber compounding. So, in speaking to, um, uh, other

People that operate in the space that are more reliant on tooling volume, um, their volumes are even significantly lower than ours, so it's a, it's clearly an industry-wide Phenomenon with, you know, once the the big tire companies start insourcing products. It takes a lot of that custom compounding Market, uh, back into their own into their own Capital capacity, which does not make it available for our, for our, uh, for our capacity. So from that perspective, we haven't lost anything other than the insourcing. And we've been seeing this year over year when the economy slows down a bit, uh, there's so much capacity that the tire companies, they bring in everything they can and then when the economy starts to heat up again, they have to Outsource more and the reason we for

That we know is steady and is there uh, quarter after quarter.

Okay. Thanks uh, just lasts 1 for me on the defense business. Uh, glad to see that the business is showing strong signs of improvement. Can you give us a sense as to what the pacing will be for the new HHS contract? Are we expected to see shipments start in 4 q and ship out equally over the next 12, to 18 months. How are you seeing timing evolved on that front?

We're still working with HHS on the delivery schedules for that. Um, they're trying to make sure that they have the warehousing space that they need and and the logistics on their side. So we're in, uh, discussions with them about about that right now, uh, so I can't give you an exact answer, but my, my suspicion is once we work out the logistics schedule, it'll be a very, very even sort of delivery plan after that month after month, it'll be a similar amount, it won't be, it'll be uh let's say it won't be variable, it'll be whatever the total volume is divided by the number of months that we have to do it. Uh and we'll be able to communicate that a little bit better as we uh, get a better view as to what their delivery schedule looks like on on that side.

Okay, thanks for the color. I'll pass the line.

Once again, please press star 1. If you have a question,

There are no further questions registered at this time, I would now like to we do have a question in the queue from Mr. Schneider from carmark securities,

Please go ahead Mr. Schneider

Hey, sorry about that. I just had a follow-up question on the HHS contract.

Um,

I was wondering which facility these are being manufactured from and if there are any startup costs,

Required to fulfill the contract. And if you could provide any

Color on the margin for that business. Thanks.

Yeah, so the the the gowns will not be manufactured in in our facilities we're working with a supply chain that includes outsourced manufacturing that we've been working with as you as you probably know, we've been working with HHS on this requirement for, for many years now. So, we have a very Advanced supply chain, uh, set up of of Manufacturers that are, are not, uh, within our facilities and, uh, the startup costs are being borne, by the, um,

Uh, look the contract manufacturers that we're using.

Um and normally we we do not give uh, product line by product line margin information for a competitive reasons.

Okay. Uh thanks. Um and just 1 1 quick, other 1.

Um what does HHS need to see for them to want to exercise the 25 million option? Is that funding dependent or do they want to see your ability to deliver quality product on time?

I suspect it's more about their their funding. Um we've demonstrated throughout our relationship with HHS doing, you know, miraculous things during the pandemic. And after the pandemic, uh, and we have a very good reputation. A very good delivery rating, uh, with HHS. So, um, I'm

I can say.

Confidently, that, that is not the concern. The concern is mostly about funding from their end.

Okay. Great. Thank you. I'll hop back in the

Next question is from from Ahmed Abdullah from the National Bank of Canada. Please go ahead and Mr. Abdullah

Yeah. Uh thanks again just a follow up on on the margins. Um at amp they've obviously improved dramatically on the back of the added defense business and now you have the Bandelier contract and the HHS contract overlapping in 2025, do you expect a steady year of stability? Margins for the segment? So can we think of a level similar to the 7%? Even though margin we just saw in Q3 is that possible for the full year of 2025

I I think I made it Frank here. I think yes it is possible. Although there are still some moving parts, so it would be difficult to say at this time. But as Chris mentioned once, uh, you know, Ben vandoliers uh, in, uh, you know, delivery mode uh, HHS we anticipate. And, you know, as Chris said, once we've got that locked in, we'll start to see that sort of profile moving forward.

Okay. And do you have any idea when you might be locked in? Like, uh, you're suspecting, it's somewhere in 2025, or the first half. Second half.

I I think it's going to be first half from everything we're seeing right now.

All right. Thank you very much.

There are no further questions registered at this time, I would now like to turn the meeting over to Mr. Bitsakakis.

Thank you, operator. Uh, this concludes the question and answer session.

Um I would like to thank everybody for attending today's call. Uh please feel free to reach out to us directly or through our investor relations team. If you have any further questions and uh thank you for participating today, have a great rest of your day.