Q4 2024 AirBoss of America Corp Earnings Call
Participants are in a listen-only mode and the conference call is being recorded after the presentation. There will be an opportunity to ask questions to join the question queue. You may press star then 1 on your telephone keypad. Should you need assistance during the conference call you may signal an operator by pressing star then zero. I would now like to turn the conference over to Mr. Grin shock chief executive officer please go ahead sir.
Uh, thank you, operator. Good morning, everyone. And thank you for joining us for the Airbus fourth quarter 2024 results conference call.
My name is Grant shocked. I'm the chairman and co-ceo of Airbus with me today are Chris bitsakakis, our president and co-ceo Frank and Tilly our CFO and Chris for Gail revpal Council.
Our agenda today will start with a review of the operational highlights for the quarter and year followed by the discussion of our financial results. Before we open the conference lines questions.
Our corporate website.
Also, we will discuss certain non-gaap measures, including Abbott doll.
Reconciliations of these measures are available in our mdna.
Finally, please note that our reporting currency is in US Dollars. Therefore references today will be in US Dollars unless we indicate otherwise
With that out and I'll turn the call over to Chris for operational review.
Thank you, grant and good morning everyone.
Although 2024 was a challenge in year for airboss as pronounced economic headwinds impacted each segment of varying degrees. Uh and the company continued to navigate obstacles related to Market softness and geopolitical challenges. We are particularly encouraged by ARS which performs strongly and generated improved margins, despite lower sales in 2024 compared to 2023 and by the continued recovery within amp's defense business
The new Malo contract. Awarded in the past quarter, in addition, to isolation gown and Bandelier Awards. Announced earlier in, 2024 are all building upon the growing momentum for this division, as we enter, 2025 with over 200 million in government contracts, awarded looking ahead to 2025, in addition, to executing on these contracts management remains focused on the successful conversion of key opportunities to support the future growth aligned with its strategic plan. However, we need to emphasize that any recovery will be subject to the current global geopolitical climate and the escalating threat of tariffs duties and other similar restrictions on trade, which could have a profound
Impact on the global economy and Canada in particular.
A significant portion of the products manufactured by the company in Canada are sold into the United States. And in addition, a portion of the company's products could be subject to tariffs, given the cross border nature of the company's business operations. The company is actively evaluating and executing on contingency plans and reviewing all available options to deal with these potential threats, including rebalancing production on sales between the US and Canada.
In an effort to minimize the impacts to the company and our customers.
Shifting back to 2024 in Q4 2024, ARS saw continued softness carried over from the previous quarter as customers. Continue to reduce orders and shutter production earlier than anticipated as they focused on reducing inventory levels, partially driven by lower demand. Despite strong performance. During the earlier part of 2024
ARS.
As well as what was reported by our main competitor experienced volume. Reductions across most sectors and saw reduced volumes compared to Q4 2023 despite these challenges and the uncertainties heading into 2025, ARS remains committed to executing on its strategy to deliver strong results with specialized products, expanding production of a broader array of count of compounds. And in fact, enhanced flexibility in attracting and filling new business through identified synergies and margin expansion.
Our launch of our new silicon line is a testament to our commitment to expanding margins through specialty compounding.
Amp experienced an overall volume reduction in the fourth quarter of 2024 primarily driven by its defense products, business and offset by continued softness in the rubber molded products business.
The defense business saw improvements in both revenue and gross profit mainly driven by new business awards. That had executed on in the quarter, the rubber molded products operations were impacted by continued. Volume softness related. To the original equipment manufacturers, shuttering production to rebalance vehicle inventory levels, which has been ongoing throughout 2024
The business continued its focus on managing costs and the commitment to drive efficiencies and best-in-class automation as well as the diversification of its product lines into adjacent sectors.
The defense business experienced positive traction during Q4 2024, which is expected to continue into next year supported by the commencement of deliveries on several previously. Announced contracts, including some recent new Awards in addition to the overhead. Reductions carried out earlier this year to help mitigate the volume softness.
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 have remained consistent and include growing the core rubber solution segment by emphasizing rubber compounding as the core driver for sustainable growth and productivity.
On diversifying and expanding its range of rubber molded products and on executing on the Strategic alignment of core versus non-core product lines, while targeting additional acquisition opportunities with the focus on adding new rubber compounding capacity.
With that, I will now pass the call over to Frank for the financial review.
percentage changes compared Q4 of 2024 to 24 of 2023 unless otherwise noted
To be respectful of your time today. I will be brief in my summary of our Q4 2024 results.
Starting from the top line. Airbuses Consolidated, net sales for Q4 2024 were 92 million, a decrease of 0.8% from the prior year, due to lower volumes at airboss rubber Solutions. Partially offset by increased sales at Airbus manufactured products, Consolidated. Gross profit for Q4 of 2024, increase by 10.2 million to 15.3 million compared, with 24 of 2023, this was primarily the result of an 8 million dollar non-cash write down in 2023 related to Nitro glove and isolation gown inventory.
And improvements in the defense products business partially offset by decreases in rubber Solutions and softness within amp's rubber molded product lines.
Turning. Now to our individual segments, net sales at ARS for 24 of 2024 were 47.3 million, a decrease of 13.1% compared to Q4 of 2023.
Volume decreased 22.5% with declines across most customer sectors. Tolling volume was down. 39% while non-polar volume was down 21.7%.
Gross profit within ARS, for Q4 of 2024 was 5.9 million compared with 7.8 million in Q4 of 2023. The decrease in gross profit was principally due to lower volumes across, most customer, sectors and product mix.
At amp, net sales for 24 202. 24 were 48.2 million. An increase of 9.4%, compared to Q4 of 2023.
the increase was a result of higher volumes in the defense products business with decreases of rubber molded product lines, driven by production reductions across most of the oems
Gross profit within amp for 24 of 2024 was 9.4 million compared to a loss of 2.7 million in Q4 of 2023. The increase was primarily a result of an 8 million non-cash rate down in. 23 related to Nitro glove and isolation gown, inventory and improved volumes and product mix in the defense product lines, further supported by operational cost improvements in the segment for the year. Ended December 2024, net cash provided by operating activities was 8.8. Million versus 40.9 million as at the end of 2023 and free cash flow was negative 1.8 million versus 32.5 million. In 2023 for the year ended, December 2024 Capital Investments of 4.4 million were made by ARs and 5.5 million were made by amp.
These Capital expenditures were related to cost-saving initiatives growth initiatives and upgrading existing property, plant and equipment.
At December 31st, 2024 are net debt. Balance was 98.9, million versus 88.2 million at the end of 2023.
We expect to fund the company's 2025, 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.
In November 2024, the company entered into 2, secured credit facilities and asset based revolving line of credit and a 555 million term loans. The company's new asset base revolving. Credit facility provides financing up to 100 million with an accordion of 50 million.
December 31st 2024, 79.4 million was available under this facility and 52.7 million was drawn.
The revolving line of credit was modified in January of 2025 to provide financing up to 125 million with an accordion of 25 million.
With that, I will now turn the call over to Gregg Brent.
Thank you, Frank, uh, in summary last year was a challenging year. However, the significant cost reductions and strong order backlogs and defense products, give us cause for optimism for improvement this year.
Obviously, the effects of the current geopolitical and tariff environment on the economy, our customers and our business has a potential to negatively impact us.
Um, with that, I will turn it over to the operator for questions.
Thank you. We will now begin the question and answer session.
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And the first question will come from Ahmed Abdullah with National Bank of Canada. Please go ahead.
Good morning and thanks for taking my question. Um,
In your remarks around the Tariff risk, you've highlighted that your sales may be subject to tariffs during the production process. Um, is that mostly related to the auto sector? Uh, or is there any other
Segments that we should think about where.
Products would be Crossing the the Border during production.
Yeah, I can't think of any of our products that go back and forth across the border for us. It's going to be either going 1 way and uh, being exposed to a tariff.
Or coming back uh and being exposed to a counter tariff. That's sort of a thing where we met. Maybe we didn't make that clear enough but we don't have products that go back and forth multiple times over the border to be finished.
Okay, that's that's helpful. And um your sales last year of in into the US were about 76% of your full year. Um can you give us that number for 2024 just to have a sense as to where things stand
Yeah, I mean, it it would be similar, obviously, flexing, given the volume drop from 24 versus 23, but proportionately would be roughly in that range.
And is there any color you're willing to provide as to how much of those sales are originating from Canada?
Uh, we're we're reviewing right now on that. I think we're going to uh have the ability to provide some more insights on that as things evolve.
Okay.
Uh, that's fair. And just on the comment about, uh, volume Improvement that you're expecting in mid, 2025 subject to tariffs. Obviously, um, you that has shifted from your last, uh, comment which was early 2025
Are you starting to see a little bit of hesitation from customers and orders or, you know, holding off back because of the geopolitical uncertainty? Or is there any other color that you can give us around to around that commentary?
Well, we're we're entering 2025 with a significant back, well over 200 million for the defense products. And, uh, we are not seeing any sort of concern or delays from our customers. Uh, a lot of the defense products were able to make in the US as an example. So, uh, but even the products that are that are made in Canada, we have not seen any delays because of that, I just think it's the regular, um, sort of waiting for a delivery order or getting it set up. Uh, there's
There's been some turmoil within some offices in the uh in the United States government in terms of getting some paperwork flowing back and forth as efficiently as it as it used to be. Uh but other than that, we're not expecting any at this point. Any major delays on delivering of those of those products.
Okay, that's fair. And just 1 last 1 for me on the new product line, the, the Silicon production line, uh, how has the uptake been by customers in terms of order flow so far.
It's, uh, it's, uh, and thanks for asking the question because we're really excited about it. Uh, we launched it, uh, late in 2024, uh, and as you recall, uh, I'm at the um,
Airbus engineered products. The, the, the automotive product line that we have there, uh, consumes a lot of, uh, a lot of silicone and up until now, we've been buying the silicone from uh, from outside. Uh, We've qualified our internal silicon production for our own product lines and we are in full production. So we already have, uh, 20 or 30% of the capacity already flowing through there. Now, that we have all of our customer approvals and, uh, we have we have started trialing, uh, the material with outside customers as of January. So, based on the plan that we had laid out in terms of what we expected the volume, I'd say we were right on plan and
And maybe a little bit ahead right now. So, uh, it's already in full production. All of our internal products have already been converted to our own silicon and now we're doing, uh, trials, uh, at uh, at other customers and, um, and that that particular silicon line, we installed in in our Michigan plant. Given the proximity to the, the molding operation.
Okay, that thanks, that's pretty helpful. Um, I'll pass the line.
Uh, thanks. Good morning, everyone.
Circling back, just on this question about, uh, cross border volumes. I guess, I'm just curious how much flexibility you guys have within your existing manufacturing footprint to to minimize the impact that that may come from tariffs?
Yeah, I mean already we have, uh, a pretty significant amount of our production, uh, in the United States, obviously, uh, Airbus manufactured products, which is our defense product lines, and our, um, Automotive product lines rubber to metal bonded, parts and non-automotive as well. It's all being, uh, molded out of
Out of Michigan. So um, I'd say the 1 area that we have. Some concern is on the rubber compounding. Uh,
From Kitchener, Ontario that gets shipped into into the US and also some out of our Quebec plant, that gets shipped into the US.
But that is also, uh, the capacity. That's the easiest to move for us because we have similar production lines, uh, in the US to be able to, uh, compound our material. We have, uh, uh, a contingency plan in place. We've spoken to many of our customers about qualifying, their material to be mixed either temporarily or, uh, or permanently in our open capacity that we have, in the US. We've contracted, um, uh, capacity in addition to our
Assisting open capacity in the US. So we have a fairly robust plan to minimize, uh, the impact that we're going to see, however, it's uh, it's going, it's not going to be an easy uh, sort of process. Um, for anything, moving equipment or molds or that, sort of thing would be very difficult, but moving a recipe to be to be mixed on 1 side of the border. The other is not that difficult. Technically, uh, we've established the capacity. We need to satisfy our customers, uh, and the customers that are, uh, adamant that, uh, you know, continue to have their product come out of Canada. Uh, we've already informed them that they'll have to be paying for, uh, that tariff impact. So we're not sure exactly how this is all going to play out because as you are following the news, like, we all are the story changes every single day, um, the exemption for, uh, the automotive industry. Uh, if that goes
Back into the raw material supply that would help us significantly by keeping at least, um, the products that we make in Kitchener that go into Automotive componentry, uh, continue to make them out of Canada and, and be tariff-free. But again, I think none of us will really know the exact impact until um, you know, there's some sort of agreement finalized in place between the 2 governments. Uh, but in the meantime we're planning for worst case. Scenarios, our contingency plans are designed to be able to shift
Action. Uh it's obviously not going to be as efficient or easy in terms of what we're doing now. But we do have contingency plans that were relatively comfortable with at this moment.
Sorry, Chris, did you say that the the the compounds that are being produced, in Kitchener, at least for this month, they're going to be tear free because if they're going to an automotive supplier that's usmca compliant is, is that right? Or am I not? Well, I understand that. Well, I I actually, I'm actually trying to figure that out right now, uh, yesterday. Um, the, the conversation was around, automobiles Autos, then late yesterday, it came out that it included Auto Parts. So we're trying to figure out today that, you know, because we, we have a significant amount of rubber out of Kitchener that goes into our own, uh, airboss engineered product segments, or, or Boss Manufacturer product segment. That is Automotive based. So we're trying to figure out what's exempt, what isn't? And it's a there's a lot of confusion right now. Um, what we did, when the talk of the terrorists first came up, is we positioned, uh, inventory out of kitchen.
Into the US uh finished goods and master badge to be able to kind of weather, the storm between 2 to 4 weeks. Uh, so as this 1 day here, 1 day there in the stories, keep changing. We don't expect a major negative impact because we've buffered ourselves for that. Uh, if this goes on, you know, more than a month and I think it's going to be a different impact, which then uh, we would kick into our contingency uh, planning in full force.
From a labor perspective.
Yeah, I mean we've been uh, planning for this. Now, for about 6 or 7 weeks from the very first moment that Trump started talking about uh terrorists. So we've been uh,
Addressing the human resource requirements that we're going to need to scale up. We also have contingency plans on scaling down the human resources in in other areas. So we have the plans in place. Um, on the on the scaling up side, we've kicked those plans in place already because you can't train people overnight. So we're carrying uh, some extra Labor uh, in our, in our us facilities right now, uh, as their training because we're also qualifying customers to be able to receive materials. So they, they need like a sample batch. They need to try it, they need to test it. And so we've been in the process of that for the past month, or so. So we've been, we've been scaling up our human resources, uh, in in uh, in our us plans. Um, we have not been scaling down in our Canadian plants and hopefully we don't need to do that. We're still hopeful that that there's some sort of solution here. But uh, we are prepared on both sides of the border to uh, to do what we have to do to um, to shift.
Yeah. And then just last 1 for me. Do you guys have an update on the the potential land sale at Kitchener and do tariffs, ultimately alter your decision on on where you relocate to? Because I remember you before you wanted to stay in the KW regen but they'd be tariffs all through that, uh, slightly, any commentary on? That would be great.
Well, I mean the the the Kitchener plan, as you know, is a really large scale facility, um, but we do have some fairly significant customers in Canada as well.
So we certainly are still uh, on track uh, to uh, Market the building in Kitchener, in fact, we should be launching that later this month. Uh, officially, um,
At the same time we would be remiss not to try and understand where we want to position the capacity. However, our intent is still to produce a large scale. Um, state-of-the-art plant in Ontario, that we can continue to provide uh, customer uh, to to provide our Canadian customers with with uh, rubber compound. And also, uh, assuming we can get this, uh, usmca agreement, uh, straightened out continue to do that in the future.
Um but yeah we're certainly trying to identify where we want to keep more capacity and the more Regional you are the better and so we are we are we are certainly facing that reality right now but our path and our plan for that operation hasn't changed. The question is um the scale of it um you know, and how and how we address that.
Okay, that's perfect. I'll hop back in. Thank you. Thanks guys.
The next question will come from Alex.
With CI BC, please go ahead.
Um hi. Good morning. Uh I just have a question on the with the changes and the US Administration and focus on cutting government spending. Um how do you think that impacts your pipeline of opportunities? Have you seen a change in the bidding environment?
Um, we have not seen a change in the bidding environment, uh, and the significant traction, we, we got last year coming into this year. We don't expect any concerns around that, um, because we're as we are in in, in, uh, you know, either in early production, or, or, or, or mid-production, or whatever the case may be on, in terms of those earlier announced contract Awards
if anything, um,
We don't expect defense spending in general to go down. In fact, um we are seeing significant increase in uh in governments in the in Europe and throughout the world planning for additional defense spending which should bode well for for what we do. Um,
So from that perspective, we don't expect uh any concerns on the defense product side. We only expect upside really in terms of all the other countries in the world increasing their they're spending on defense. That should be positive for us and other defense contractors. And we don't really expect the US uh, to be, um, taking significant money out of the defense budget. But if that happens, certainly, the types of products that we do, that are related to Soldier protection are are normally, uh, quite important to keep, uh, to keep flowing through.
Thank you, that's helpful.
um, another
and any opportunities to sell your kitchen or facility,
Kitchener facility, uh, will be officially put on the market, uh, sometime this month. And as I mentioned on the, on the prior question, Our intention is to build a state-of-the-art plan, uh, in, uh, in the region to be able to, uh, focus on both Canadian and depending on how this tariff, uh, conversation goes, um, uh, us, uh, US exports. However, if US exports are limited. Um, there's also significant rubber compounds that are exported from the US into Canada. And uh, and we have sent a letter to the to the minister of finance of Canada uh informing him that as part of the counter tariffs, the rubber compound imported into into Canada should be included in that. So it's uh it's going to be interesting to see how it plays out. Uh assume I'm assuming for now that there's some sort of solution on on this
Uh, this new usmca and we'll be we'll be able to continue to export to the US, but if we can't, uh, we have a good significant base of of Canadian customers already. And, uh, the ones that we don't have, I think will be a much easier Target for us if we're able to get those countermeasures in place. So it's all going to flow in the end in such a way that uh, we will, uh, be flipping that property. We will continue to have uh uh facility in Canada.
In Ontario, and Quebec. And we'll try and find a way to, uh, expand that depending on the, on the economic climate that we see, at that time.
Thank you. That's all my questions.
This concludes our question and answer session.
I would like to turn the conference back over to Mr. Chris, that's a caucus for any closing, remark closing remarks please. Go ahead, sir.
Thank you, operator. And uh and thanks again to everyone for attending today's call. Please feel free to reach out to us directly uh or through our investor relations team. If you have any questions on our results or in general at all, thank you and goodbye and have a great day.
This brings to a close today's conference call, you may disconnect your lines, thank you for participating and have a pleasant day.