TSE:BOS AirBoss of America Q3 2023 Earnings Report C$3.91 -0.10 (-2.49%) As of 03:59 PM Eastern Earnings HistoryForecast AirBoss of America EPS ResultsActual EPS-C$0.13Consensus EPS -C$0.07Beat/MissMissed by -C$0.06One Year Ago EPSN/AAirBoss of America Revenue ResultsActual Revenue$137.11 millionExpected Revenue$147.86 millionBeat/MissMissed by -$10.75 millionYoY Revenue GrowthN/AAirBoss of America Announcement DetailsQuarterQ3 2023Date11/8/2023TimeN/AConference Call DateThursday, November 9, 2023Conference Call Time9:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckInterim ReportEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by AirBoss of America Q3 2023 Earnings Call TranscriptProvided by QuartrNovember 9, 2023 ShareLink copied to clipboard.There are 9 speakers on the call. Operator00:00:00Good morning, ladies and gentlemen. Welcome to Airbus Third Quarter 2023 Financial Results Conference Call. I would now like to turn the meeting over to Grant Schoch, Co Chief Executive Officer. Please go ahead, Mr. Schoch. Speaker 100:00:15Good morning, everybody, and thank you for joining us for the Airbus Third Quarter 2023 Results Call. For our agenda today, Chris Bitsycakas will start with a review of the operational highlights for the quarter year to date followed by Frank Indilly, our CFO, that will discuss our financial results before we open the conference line for questions. Before we begin, I will related to our business in our annual information form and our MD and A, both of which are available on SEDAR with us and on our corporate website. Also, we will discuss certain non GAAP measures, including EBITDA. Reconciliations of these measures are available in our MD and A. Speaker 100:01:09And finally, please note that our reporting currency is in U. S. Dollars. References today will be in U. S. Speaker 100:01:16Dollars unless we indicate otherwise. With that, I will turn it over to Chris. Speaker 200:01:23Thanks, Gren. Speaker 300:01:24Looking at our Q3 results as we move through the end of 2023 and into 2024, Each of our 3 business segments maintained their focus on strong operational performance, capturing new growth opportunities and making select capital investments while navigating the current Consolidated sales levels were a couple of percentage points off of sales posted in Q3 of 2022 and gross profit was substantially higher due to a one time inventory charge we took in the Q3 last year. After adjusting for this charge, our adjusted EBITDA adjusted earnings showed reasonable improvement over last year's Q3 results. Importantly, we have generated free cash flow year to date in 2023 and have continued to reduce our net debt levels, which have declined by over $18,800,000 to date in 2023. As expected, our business units are carefully monitoring current demand levels, which in aggregate are indicating reduced customer activity and order volumes. Within AirBoss Rubber Solutions, demand within the 1st part of Q3 was soft and showed some recovery through the end of the quarter. Speaker 300:02:25AirBoss Defense Group saw some contraction customer demand from both its industrial and defense segments. And last but not least, AEP maintained strong traction and build on momentum from prior quarters despite some of the early impacts of the UAW strike. Within each of our business segments, we have moved ahead with the implementation and in some cases expansion of the cost cutting measures we announced at the time of our Q2 conference call. Looking more closely at our business segment activity, Starting with ARS, for Q3 of 2023, we saw volumes decrease by 9.1% over the Q3 in 2022, with decreases across most of the sectors we service and a continued decline in tolling volumes. In Q3, we made the strategic decision to close our Chicago location, which you may recall was added to our portfolio of facilities when we purchased Acyl al Asimyr in 2021. Speaker 300:03:17We have now shifted our production to improve capacity utilization at our other locations, while continuing to meet the needs of our customers previously served from the Chicago location. This as well as other cost containment efforts have allowed us to continue to invest in our production capabilities and continue our applied R and D and partnerships with our customers. A long term priority for ARS remains focused on delivering growth through our position as a leading supplier, specialty supplier in North America. 1 with a valuable portfolio of specialty compounds combined with strong production capabilities. The ARS team is also focused on replacing the volume gap from tolling customers with more advanced, More consistent non tolling volumes. Speaker 300:03:57Moving now to Engineered Products or AEP. We have seen continued solid momentum in its activity levels We have definitely seen some negative effects of the UAW strike on the production schedules of the OEMs and Tier 1 suppliers, But given our success in updating our main supplier agreements in late 2022 early 2023, we saw higher year over year volumes in our SUV and light truck platforms. Looking forward, we remain very positive about the potential for AEP to increase its contributions to our financial results through 2023 and beyond through our focus on expanding our client relationships, developing new products and diversifying the sectors we operate in. Moving on to ADG, we announced in late July that due to delays in converting sales opportunities for our suite of survivability products, We made the strategic decision to implement a series of measures to reduce ADG's cost, streamline operations and reduce ADG's breakeven point metrics as we await new contract awards. Our focus during this process was to create a much closer alignment of the operating cost base within ADG and its ongoing level of business activity. Speaker 300:05:05The cost saving measures are expected to result in approximately $5,000,000 in annual cost reductions once fully implemented. Through this process, it was also imperative for us to ensure that our ability to deliver against current and future supplier agreements remains strong, which I also believe we have accomplished. The ADG survivability platform remains fully capable to execute against current and future awards as recent evidence of the capabilities of ADG's product portfolio. In early July, we announced new contracts for AirBoss molded glove and also our bandolier line charge system. In addition, ADG received 2 new orders for Bunny Boots during the quarter. Speaker 300:05:43On a combined basis, these new orders have an aggregate value of approximately 34,000,000 and demonstrate the diversity of ADG's lineup of survivability solutions. During the Q3 meeting of our Board of Directors, The decision was made to return our common share dividend to pre-twenty 21 levels as part of our overall efforts to maintain our emphasis and recent progress on strengthening our balance sheet. Looking forward, we continue to see the provision of a dividend as part of our value proposition to our investors. We remain confident that our products along with our production execution capabilities continue to position us to deliver long term value for our shareholders. I will now pass the call over to Frank for the financial review. Speaker 300:06:23Thanks, Chris, and good morning, everyone. As a reminder, all dollar amounts presented today are in U. S. Dollars except for dividends per share, which are Speaker 400:06:32in Canadian dollars. Percentage changes compared Q3 2023 to Q3 of 2022 unless otherwise noted. Starting from the top line, consolidated Q3 net sales were $102,200,000 which were 2.4% lower than Q3 of 2022. With a year over year decline in sales within Airbus Rubber Solutions and ADG that was partially offset by higher sales in Engineered Products. Consolidated gross profit increased to $13,800,000 which was substantially higher than our gross profit in Q3 of 2022 given the one time charge taken against inventory within ADG during Q3 of last year. Speaker 400:07:09As a percentage of sales, gross margin contribution was 13.5%. Improved volumes within AEP were a significant contributor to our gross margins along with the overhead cost reduction measures we have put in place in our business segments. Our adjusted EBITDA increased to $7,200,000 in Q3 and our Q3 2023 adjusted profit was negative $2,600,000 or negative $0.10 per diluted share compared to negative $11,800,000 or negative $0.44 per diluted share in Q3 of 2022. Turning now to our individual segments, ADG's net sales decreased 10% to $21,200,000 with the decrease primarily due to a modest decrease in volume set by an unfavorable product mix and lower volumes. Net sales at Airbus Rubber Solutions decreased 12.9 percent to $51,000,000 in Q3, driven by a 9.1% decrease in volumes across many of our end use markets during the early part of the quarter, followed by a modest recovery towards the end of the quarter. Speaker 400:08:21Gross profit at ARS decreased 8.7 percent to $7,600,000 due to volume reductions and product mix and was partially offset by Overhead cost reduction and initiatives. Q3 2023 gross profit as a percentage of sales was 15%, which improves on the 14 0.3% margin posted in Q3 of 2022. Net sales in the Engineered Products segment increased by 28.5 percent to $37,500,000 due to higher volumes and product mix in the SUV and light truck platforms and partially offset by the impacts of the UAW labor strike on OEM production schedules. Gross profit at AEP increased by $7,700,000 over Q3 of 2022 to $3,600,000 and this was due to volume improvements for certain vehicle platforms, product mix, improved arrangements with our key suppliers and customers along with our ongoing cost management efforts. Free cash flow for Q3 was an inflow of $6,600,000 which supported our continued investment in capital assets and further reductions of our debt. Speaker 400:09:26CapEx was $2,100,000 in Q3 of 2023 and we reduced our net debt balance by a further $4,300,000 in Q3. We continue to ensure we maintain sufficient liquidity to fund the growth of our business. Our revolving credit facility availability is $250,000,000 with an accordion of $91,000,000 for a net leverage ratio of 2.49 times trailing 12 month adjusted EBITDA. With that, I will now turn the call over to Chris. Speaker 300:10:04Thank you, Frank. Operator, at this point, we can open up the line for any Q and A. Operator00:10:11Thank you. We will now take questions from the telephone lines. First question is from Ahmed Abdulla from National Bank of Canada. Please go ahead. Speaker 500:10:50Yes, hi, good morning. Speaker 400:10:54Good morning, good morning. Speaker 500:10:56My first question is about the savings that were announced, which are expected to contribute $7,700,000 adjusted EBITDA. Does this include the $5,000,000 savings that you were already Discussing the corporate update that was given in July or is this over and above? Speaker 400:11:13No. Thanks, Yvette, for the This includes the $5,000,000 that was previously announced for ADG was obviously expanded to the other segments both ARS And AEP as well. Speaker 500:11:26Okay. Got it. Thanks. And is there I know it's maybe a bit early, but is there any way that you can Perhaps quantify or give us some sort of goalposts to the UAW strike impact that could occur in Q4? Speaker 300:11:46So, Amit, we did see some small impact in Q3 from the UAW strike. That impact was small because a lot of our products go on SUVs and light trucks and the UAW left That tool in their tool bag until later. So early in Q4, they did Shut down some pickup trucks and SUV plants. So the impact became greater. The good news is that it was very short lived. Speaker 300:12:18And the indication that we're getting now from the big three and others is that We should be preparing to be working extra overtime to make up that gap. So at this point in time, it's hard to say what the overall impact is going to be from the UAW strike. But I would say, we're quite pleased that it was quick and there appear to be indicators that they want to make up that volume. So We'll know better as the quarter progresses, but at this point in time, don't see it as a dramatic impact Either on Q3 or on Q4. Speaker 500:12:55So but do you have the capacity to make up that shortfall within the Q4 In case the orders come in? Speaker 600:13:03Yes, we do. Speaker 500:13:05Perfect. And then just last one for me. Chris, you've And then the co CEO role now for since July. What have been the takeaways as you reflect On all the segments and where things are going, what takeaways can you share with The Street? And should we expect some sort of Strategy to be communicated to The Street over the next coming months? Speaker 300:13:35Yes, that's a really good question. We could probably spend a lot of time on that. But since July, we started a very deep in-depth strategic review On every Sogdell product line we have, every market that we operate in, how we're set up and structured operationally, what our back office systems look like. And so we I've been putting a lot of effort with our team here to create sort of a strategy for cost of the future. And luckily, we have a very strong foundation, some excellent products and Some incredible people that work for us. Speaker 300:14:10And so come towards the end of this year, we'll be reviewing that strategy with the Board of Directors And communicating something shortly after that to the market in terms of what we see the vision for Airbus to be In the short, medium and long term. Speaker 500:14:28Okay. Well, looking forward to that and Thanks for taking my question. I'll queue up. Speaker 100:14:34Thanks, Amit. Operator00:14:36Thank you. Our next question is from Jasru Bairn from TD Cowen. Please go ahead. Speaker 700:14:47Good morning. Speaker 400:14:50Good morning. Speaker 700:14:52So we you guys already answered our UEW question. So we only have one additional question. We're wondering if you could provide some color on the cost saving initiatives. Last quarter you noted that the majority of the then $5,000,000 in cost savings have been executed on. Is the majority of the $7,700,000 of cost savings executed on in Q3 or will some of it leak into Q4? Speaker 700:15:16Is that how we should think about it? Or if you could provide a bit more color, that would be much appreciated. Speaker 400:15:21Yes. Thanks, Jasvir. It's Frank here. Good question. Yes. Speaker 400:15:24The $5,000,000 that we mentioned after Q2 was fully executed and the remaining $2,700,000 substantially all of that That has been executed at the end of Q3. So we will start to see the full impact in Q4 for the full savings annualized $7,700,000 Speaker 700:15:45Okay, perfect. And then actually, I guess, I just wanted a clarification on the UEW strikes. So you guys had noted that it had an immaterial impact on Q3 results as well, right? Or was that just in reference to Q4? Speaker 300:16:00Yes. Q3, I'd say, was an immaterial impact. Q4 early in Q4, it's a more material impact. However, indications are that there's going to be some catch up on that volume. So there will probably be some impact in Q4, but we don't view it That's going to be overly dramatic, but at this point it's hard to estimate because not all the releases have come in yet from the customers That are forecasting exactly what their requirements are going to be by the end of December, but the indications from the different purchasing departments of our customers Is that they that we should prepare to run over time because they're going to need to make up that volume. Speaker 300:16:39So that's kind of in that in between phase that we're at right now. Speaker 700:16:44Okay, perfect. Yes, that's everything from us. I'll pull myself back in the queue. Thanks guys. Operator00:16:51Thank you. Our next question is from Theresa Lee from Valkyrie Capital. Please go ahead. Speaker 800:16:58Hi, guys. Speaker 200:17:01Good morning. Speaker 100:17:01Hi, Theresa. Speaker 800:17:03Hi. My question is more related to Free cash flow generation going forward, can you talk a bit about use of working capital in a if we're in an Economic downturn, do you generate more cash from working capital during that time? Speaker 400:17:21Teresa, this is Frank. Usually, yes, we continue to focus on deleveraging and obviously during economic downtimes, we're very focused on All the working capital levers to convert cash more quickly, managing our inventory and also being very cautious with our CapEx spend. Again, we monitor very closely and work with each of the segments to make sure we're maximizing the cash flow opportunity to continue to pay down debt. And so we're being very cautious and very aware as we move forward. I would suggest though, as we get into year end, as every company starts to tighten up things, there will be Pressure on free cash flow in Q4, but we anticipate continuing the trend that we've had so far this year into 'twenty four. Speaker 800:18:05Thank you. And is maintenance CapEx about where you are now, like about $4,000,000 a quarter or like what's the annual maintenance CapEx? Speaker 400:18:15Annual maintenance CapEx is usually in the $10,000,000 to $12,000,000 range and but we've been cautious obviously, but we'll continue to invest that where appropriate. Speaker 800:18:25Okay. So if you generate kind of cash flow of call it 25,000,000 a year $10,000,000 to $12,000,000 in maintenance CapEx and you have $10,000,000 to $15,000,000 in free cash flow to pay down debt annually? Speaker 400:18:44Right. Speaker 800:18:47Okay. Thank you. Operator00:18:49That's all. Thank you. Speaker 600:18:52Thank you. Operator00:18:53Our next question is from Ben Yekis from PI Financial. Please go ahead. Speaker 100:19:01Yes. I wanted to ask Speaker 700:19:04Can you hear me? Speaker 500:19:06Yes. Speaker 100:19:08I wanted to ask about the dividend cut and Can we read into that a certain payout ratio that is implied for 2024, 2025 or What made the $0.03 reduction come about and not say $0.02 or 4? It was Our best estimate of what we should be doing. Obviously, you can't pay out More money than you're earning for forever. The dividend had been increased significantly when The Defense Division was doing much better than it is now and when it had those big contracts. So right now, we have a focus on deleveraging with interest rates where they are. Speaker 100:20:14Our interest Costs are very high. And I think just the way the stock was trading, the market was Speculating that the dividend wasn't sustainable, could we have sustained to that 10? Yes, we could have, but we felt that we weren't getting any real benefit from doing that. And It also demonstrates to the market and our lenders that we are being Conservative and trying to maximize our deleveraging efforts. Okay, perfect. Speaker 100:21:01That's it for me. Operator00:21:06Thank you. Next question is from Adam McBain from Cormark Securities. Please go ahead. Speaker 200:21:13Great. Thank you. Good morning, guys. Just very quickly, most of my questions have been answered, but it's nice to hear your commentary around your commitment to paying down debt. I'm just Curious, more of a clarification question. Speaker 200:21:26What is your target ratio? Like where are you trying to take the balance sheet to going forward? Speaker 400:21:36Adam, this is Frank. I mean, obviously, if you look at us from a historical Our comfort level is leverage at below 2.5 and I think that's where we want to get to high ones, low twos, but we Continue to make that the biggest priority and continue to focus on converting cash, paying down debt and being very Efficient with how we're managing the cash flow and obviously been giving us some bandwidth To look at other strategic investments as required. Speaker 200:22:09Okay, got it. That's helpful. And then I realize that you've been reducing Some of the headcount in ADG. I'm just curious, if you were to win a large contract, how quickly would you be able to ramp up for that? Speaker 300:22:24Yes, we were very careful and very surgical in the reductions at ABG, which as Frank mentioned earlier, We expanded some of those same processes to find those efficiencies in the other two groups as well. And we did it very carefully so that there would be no impact in our ability to ramp up. We still have a very Large and healthy pipeline of opportunities and we want to make sure that we can capitalize on them when they happen. So We were very careful not to affect that ability to ramp up quickly with some of the changes that we made. Speaker 200:23:01Perfect. That's very helpful. Thank you very much guys. That's it for me. Speaker 400:23:06Thank you. Operator00:23:09We have the next question from Ahmed Abdulla, National Bank of Canada. Please go ahead. Speaker 500:23:16Yes. Just a follow-up. Are we expecting to see another add back of restructuring charges in Q4? Speaker 400:23:25Amit, it's Frank here. Not at this point. As I said, we're very careful and sure we did what we needed to do, which has been announced, but now we're really looking to execute on the strategy, the cash conversion and obviously the gained efficiencies as a result of the restructuring. Speaker 500:23:44Okay. Thanks for the color. Operator00:23:48Thank you. And last question this time from Kevin Chiang from CIBC. Please go ahead. Speaker 600:23:55Hey, Youssef. Thanks for taking my question. I apologize if some of this has been asked already. I jumped on another call here. It feels like your pipeline It feels pretty good, right? Speaker 600:24:10You've been talking about that for a few years here, just getting these orders through has been a little bit more challenging. I think if you take a step back here, I'm just wondering outside of some of the restructuring you've done and as you mentioned some of the The changes you made in ADG, just are you rethinking maybe the broader strategy here to maybe give yourself or things you can do to give yourself More earnings visibility or maybe reducing kind of the boom and bust nature of your earnings profile, just given But the contract comes through, you obviously earned multiples of what you're earning today. And if it doesn't, you're at a fraction of that. Just I guess strategically, how you think about that to Maybe smooth this out through the cycle. Speaker 300:24:58Yes, it's difficult to give too much color on that right now because we're right in the middle of that Sort of deep dive strategic review on all our product lines and kind of what we want to focus on and don't want to focus on. Certainly, the pipeline of opportunities for ABG is still very, very strong. Clearly, the government contracts related to executing on those opportunities have been a little bit elusive and we see governments struggling with funding, governments with debt ceiling issues and a bunch of Things like that, that make the conversion of that pipeline for us very frustrating and it does lead to sort of That boom and bust fluctuation where there are times where we have immense amounts of work and there are other times where We go dry for an extended period of time. So that fluctuation is something that concerns us, of course. And it's one of the many items that we're Considering in our strategic review in terms of how we want to be able to go to market with a more consistent expectation on revenue and Profit generation without these massive swings and what that means in terms of either broadening the portfolio and narrowing the portfolio, Adjusting the markets we serve, all these things are sort of on the table as we would like to find a way to a path to a more consistent Operating model based on the markets that we serve. Speaker 600:26:27And just I would have thought And maybe you would have thought the same thing and it'd be interesting to know what you're hearing from, I guess, the U. S. Defense Department and other defense bodies that you work with. But I would have thought what you sell into that end market Is more recurring in nature, more of a fixed spend versus when I think of Defense projects that typically get or are at risk or get cut during budget issues are usually larger Programs, fighter jets and things like that where you can maybe push that out or maybe more marginal programs. Just I guess, Is there do you have a different DoD situation today around maybe the recurring nature of some of this Because I would imagine you would need this equipment regardless where the budget is. Speaker 600:27:26So I guess I'm surprised that this is the stuff that's getting cut or this is the stuff that gets delayed, Just given it seems like a low dollar amount and obviously there's a significant PPD Component to this. Speaker 300:27:43Yes, it's I agree with you. I think we have that same expectation. Now having said that, Q3 was actually a pretty good quarter for us in terms of some singles and some doubles on some recurring business. We got A new CBRN glove order, we got a couple of Bunny Boot orders. So we're seeing some orders coming in. Speaker 300:28:07That's more that recurring nature that is sort of our At least our base business from that perspective. But it's interesting, you mentioned fighter jets and things like that. It seems like During times of conflict like we have now, those get more attention than some of the products that we have. And with the constraint on budgets and particularly the U. S. Speaker 300:28:34Government with the amount of support and other and all the G7 governments really, the amount of support that they're giving To the Ukraine and to other parts other hotspots in the world now, it seems to be really driving up sales of Things that are sharp and pointy versus the types of products that we make. But we have an expectation that Especially with some of the talk around chemical weapons and the threats of chemical weapons that at some point we're going to see a fairly significant Uptick on what we do, but we just haven't seen that yet. And it appears that with all the budget concerns, Some of the more sexy items are getting more attention, but we expect that Soldier Protection We'll always be there and we'll continue to drive revenue. But at this point in time, other than, like I said, a pretty good quarter in Q3 for some of that baseload business, Up until now, we hadn't seen much of it. Speaker 600:29:32And just last question for me. Does the U. S. This presidential election next year, does that impact when you look back historically, would that impact how orders would come through? Like Is next year a potential year where people are more reticent to spend just because you might have a change in administration? Speaker 600:29:55Or historically, when you look That's been kind of a non event in terms of impacting bids and potential orders. Speaker 100:30:14Obviously, the presidential election has an effect, although I think Both presidents are in favor of strengthening the military. The biggest issue we've had in the U. S. Is the Still made in Congress Speaker 700:30:33and Speaker 100:30:35the threats to shut the government down, Debt ceilings were passed on the condition that they took that they take unspent PPE money And call it back. So they had announced that they were going to build up a huge Strategic stockpile of PPE in case there was another pandemic, well, that hasn't happened and it's happened to some extent, but not certainly not to the extent that They've been talking about and one of the conditions that the debt ceiling was As the last time was that they agreed to call back unspent PPE money. So that directly hurt us. It doesn't change the need. They will need it, but it's not they need a new budget To pass it. Speaker 100:31:35So the political theater that's happening in the U. S. Is Not constructive. And Canada, not that we matter, but Our Prime Minister has seen fit to like we don't even come close to making our NATO commitments. Yes, our Prime Minister seems to see us fit to take $1,000,000,000 out of the defense budget, which is already 50% of what it should be. Speaker 100:32:10It's very frustrating, but that's what we're dealing with. Speaker 600:32:14No, it's no, that's those are all very good and very valid points. I'll leave it there. Thank you for taking my questions and best of luck to get through the remainder of this year. Speaker 100:32:26Thank you. Thanks, Kevin. Operator00:32:29Thank you. There are no further questions at this time. I will return the meeting back over The floor for closing remarks. Speaker 300:32:38Thank you, operator, and thanks again to everyone for attending today's call. Please reach out to us directly or through our Investor Relations team if you have any questions on our results or in general. Thank you and have a great day. Operator00:32:50Thank you. Your conference has now ended. Please disconnect your lines at this time and we thank you for your participation.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallAirBoss of America Q3 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckInterim report AirBoss of America Earnings HeadlinesNational Bank Financial Predicts TSE:BOS Q1 EarningsMay 3, 2025 | americanbankingnews.comEquities Analysts Set Expectations for TSE:BOS Q2 EarningsMay 1, 2025 | americanbankingnews.comMarket Panic: Trump Just Dropped a Bomb on Your Stockstock Market Panic: Trump Just Dropped a Bomb on Your Stocks The market is in freefall—and Trump's new tariffs just lit the fuse. Millions of investors are blindsided as stocks plunge… but this is only Phase 1. If you're still holding the wrong assets, you could lose 30% or more in the coming weeks.May 7, 2025 | American Alternative (Ad)AIRBOSS OF AMERICA CORP (BOS.NE)April 15, 2025 | ca.finance.yahoo.comAirBoss of America price target lowered to C$7 from C$8 at TD SecuritiesMarch 19, 2025 | markets.businessinsider.comAirBoss of America price target lowered to C$5 from C$5.75 at National BankMarch 11, 2025 | markets.businessinsider.comSee More AirBoss of America Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like AirBoss of America? Sign up for Earnings360's daily newsletter to receive timely earnings updates on AirBoss of America and other key companies, straight to your email. Email Address About AirBoss of AmericaAirBoss of America (TSE:BOS) Corp is a Canada-based manufacturer of rubber-based products for the resource, military, automotive and industrial markets. It operates in three segments: Rubber Solutions, Engineered Products, and AirBoss Defense Group. The Rubber Solutions segment includes manufacturing and distribution of rubber compounds and distribution of rubber compounding-related chemicals. The Engineered Products segment includes the manufacture and distribution of anti-noise, vibration, and harshness dampening parts. The AirBoss Defense Group is engaged in the manufacturing and distributing of personal protection and safety products and the manufacture of semi-finished rubber-related products. 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There are 9 speakers on the call. Operator00:00:00Good morning, ladies and gentlemen. Welcome to Airbus Third Quarter 2023 Financial Results Conference Call. I would now like to turn the meeting over to Grant Schoch, Co Chief Executive Officer. Please go ahead, Mr. Schoch. Speaker 100:00:15Good morning, everybody, and thank you for joining us for the Airbus Third Quarter 2023 Results Call. For our agenda today, Chris Bitsycakas will start with a review of the operational highlights for the quarter year to date followed by Frank Indilly, our CFO, that will discuss our financial results before we open the conference line for questions. Before we begin, I will related to our business in our annual information form and our MD and A, both of which are available on SEDAR with us and on our corporate website. Also, we will discuss certain non GAAP measures, including EBITDA. Reconciliations of these measures are available in our MD and A. Speaker 100:01:09And finally, please note that our reporting currency is in U. S. Dollars. References today will be in U. S. Speaker 100:01:16Dollars unless we indicate otherwise. With that, I will turn it over to Chris. Speaker 200:01:23Thanks, Gren. Speaker 300:01:24Looking at our Q3 results as we move through the end of 2023 and into 2024, Each of our 3 business segments maintained their focus on strong operational performance, capturing new growth opportunities and making select capital investments while navigating the current Consolidated sales levels were a couple of percentage points off of sales posted in Q3 of 2022 and gross profit was substantially higher due to a one time inventory charge we took in the Q3 last year. After adjusting for this charge, our adjusted EBITDA adjusted earnings showed reasonable improvement over last year's Q3 results. Importantly, we have generated free cash flow year to date in 2023 and have continued to reduce our net debt levels, which have declined by over $18,800,000 to date in 2023. As expected, our business units are carefully monitoring current demand levels, which in aggregate are indicating reduced customer activity and order volumes. Within AirBoss Rubber Solutions, demand within the 1st part of Q3 was soft and showed some recovery through the end of the quarter. Speaker 300:02:25AirBoss Defense Group saw some contraction customer demand from both its industrial and defense segments. And last but not least, AEP maintained strong traction and build on momentum from prior quarters despite some of the early impacts of the UAW strike. Within each of our business segments, we have moved ahead with the implementation and in some cases expansion of the cost cutting measures we announced at the time of our Q2 conference call. Looking more closely at our business segment activity, Starting with ARS, for Q3 of 2023, we saw volumes decrease by 9.1% over the Q3 in 2022, with decreases across most of the sectors we service and a continued decline in tolling volumes. In Q3, we made the strategic decision to close our Chicago location, which you may recall was added to our portfolio of facilities when we purchased Acyl al Asimyr in 2021. Speaker 300:03:17We have now shifted our production to improve capacity utilization at our other locations, while continuing to meet the needs of our customers previously served from the Chicago location. This as well as other cost containment efforts have allowed us to continue to invest in our production capabilities and continue our applied R and D and partnerships with our customers. A long term priority for ARS remains focused on delivering growth through our position as a leading supplier, specialty supplier in North America. 1 with a valuable portfolio of specialty compounds combined with strong production capabilities. The ARS team is also focused on replacing the volume gap from tolling customers with more advanced, More consistent non tolling volumes. Speaker 300:03:57Moving now to Engineered Products or AEP. We have seen continued solid momentum in its activity levels We have definitely seen some negative effects of the UAW strike on the production schedules of the OEMs and Tier 1 suppliers, But given our success in updating our main supplier agreements in late 2022 early 2023, we saw higher year over year volumes in our SUV and light truck platforms. Looking forward, we remain very positive about the potential for AEP to increase its contributions to our financial results through 2023 and beyond through our focus on expanding our client relationships, developing new products and diversifying the sectors we operate in. Moving on to ADG, we announced in late July that due to delays in converting sales opportunities for our suite of survivability products, We made the strategic decision to implement a series of measures to reduce ADG's cost, streamline operations and reduce ADG's breakeven point metrics as we await new contract awards. Our focus during this process was to create a much closer alignment of the operating cost base within ADG and its ongoing level of business activity. Speaker 300:05:05The cost saving measures are expected to result in approximately $5,000,000 in annual cost reductions once fully implemented. Through this process, it was also imperative for us to ensure that our ability to deliver against current and future supplier agreements remains strong, which I also believe we have accomplished. The ADG survivability platform remains fully capable to execute against current and future awards as recent evidence of the capabilities of ADG's product portfolio. In early July, we announced new contracts for AirBoss molded glove and also our bandolier line charge system. In addition, ADG received 2 new orders for Bunny Boots during the quarter. Speaker 300:05:43On a combined basis, these new orders have an aggregate value of approximately 34,000,000 and demonstrate the diversity of ADG's lineup of survivability solutions. During the Q3 meeting of our Board of Directors, The decision was made to return our common share dividend to pre-twenty 21 levels as part of our overall efforts to maintain our emphasis and recent progress on strengthening our balance sheet. Looking forward, we continue to see the provision of a dividend as part of our value proposition to our investors. We remain confident that our products along with our production execution capabilities continue to position us to deliver long term value for our shareholders. I will now pass the call over to Frank for the financial review. Speaker 300:06:23Thanks, Chris, and good morning, everyone. As a reminder, all dollar amounts presented today are in U. S. Dollars except for dividends per share, which are Speaker 400:06:32in Canadian dollars. Percentage changes compared Q3 2023 to Q3 of 2022 unless otherwise noted. Starting from the top line, consolidated Q3 net sales were $102,200,000 which were 2.4% lower than Q3 of 2022. With a year over year decline in sales within Airbus Rubber Solutions and ADG that was partially offset by higher sales in Engineered Products. Consolidated gross profit increased to $13,800,000 which was substantially higher than our gross profit in Q3 of 2022 given the one time charge taken against inventory within ADG during Q3 of last year. Speaker 400:07:09As a percentage of sales, gross margin contribution was 13.5%. Improved volumes within AEP were a significant contributor to our gross margins along with the overhead cost reduction measures we have put in place in our business segments. Our adjusted EBITDA increased to $7,200,000 in Q3 and our Q3 2023 adjusted profit was negative $2,600,000 or negative $0.10 per diluted share compared to negative $11,800,000 or negative $0.44 per diluted share in Q3 of 2022. Turning now to our individual segments, ADG's net sales decreased 10% to $21,200,000 with the decrease primarily due to a modest decrease in volume set by an unfavorable product mix and lower volumes. Net sales at Airbus Rubber Solutions decreased 12.9 percent to $51,000,000 in Q3, driven by a 9.1% decrease in volumes across many of our end use markets during the early part of the quarter, followed by a modest recovery towards the end of the quarter. Speaker 400:08:21Gross profit at ARS decreased 8.7 percent to $7,600,000 due to volume reductions and product mix and was partially offset by Overhead cost reduction and initiatives. Q3 2023 gross profit as a percentage of sales was 15%, which improves on the 14 0.3% margin posted in Q3 of 2022. Net sales in the Engineered Products segment increased by 28.5 percent to $37,500,000 due to higher volumes and product mix in the SUV and light truck platforms and partially offset by the impacts of the UAW labor strike on OEM production schedules. Gross profit at AEP increased by $7,700,000 over Q3 of 2022 to $3,600,000 and this was due to volume improvements for certain vehicle platforms, product mix, improved arrangements with our key suppliers and customers along with our ongoing cost management efforts. Free cash flow for Q3 was an inflow of $6,600,000 which supported our continued investment in capital assets and further reductions of our debt. Speaker 400:09:26CapEx was $2,100,000 in Q3 of 2023 and we reduced our net debt balance by a further $4,300,000 in Q3. We continue to ensure we maintain sufficient liquidity to fund the growth of our business. Our revolving credit facility availability is $250,000,000 with an accordion of $91,000,000 for a net leverage ratio of 2.49 times trailing 12 month adjusted EBITDA. With that, I will now turn the call over to Chris. Speaker 300:10:04Thank you, Frank. Operator, at this point, we can open up the line for any Q and A. Operator00:10:11Thank you. We will now take questions from the telephone lines. First question is from Ahmed Abdulla from National Bank of Canada. Please go ahead. Speaker 500:10:50Yes, hi, good morning. Speaker 400:10:54Good morning, good morning. Speaker 500:10:56My first question is about the savings that were announced, which are expected to contribute $7,700,000 adjusted EBITDA. Does this include the $5,000,000 savings that you were already Discussing the corporate update that was given in July or is this over and above? Speaker 400:11:13No. Thanks, Yvette, for the This includes the $5,000,000 that was previously announced for ADG was obviously expanded to the other segments both ARS And AEP as well. Speaker 500:11:26Okay. Got it. Thanks. And is there I know it's maybe a bit early, but is there any way that you can Perhaps quantify or give us some sort of goalposts to the UAW strike impact that could occur in Q4? Speaker 300:11:46So, Amit, we did see some small impact in Q3 from the UAW strike. That impact was small because a lot of our products go on SUVs and light trucks and the UAW left That tool in their tool bag until later. So early in Q4, they did Shut down some pickup trucks and SUV plants. So the impact became greater. The good news is that it was very short lived. Speaker 300:12:18And the indication that we're getting now from the big three and others is that We should be preparing to be working extra overtime to make up that gap. So at this point in time, it's hard to say what the overall impact is going to be from the UAW strike. But I would say, we're quite pleased that it was quick and there appear to be indicators that they want to make up that volume. So We'll know better as the quarter progresses, but at this point in time, don't see it as a dramatic impact Either on Q3 or on Q4. Speaker 500:12:55So but do you have the capacity to make up that shortfall within the Q4 In case the orders come in? Speaker 600:13:03Yes, we do. Speaker 500:13:05Perfect. And then just last one for me. Chris, you've And then the co CEO role now for since July. What have been the takeaways as you reflect On all the segments and where things are going, what takeaways can you share with The Street? And should we expect some sort of Strategy to be communicated to The Street over the next coming months? Speaker 300:13:35Yes, that's a really good question. We could probably spend a lot of time on that. But since July, we started a very deep in-depth strategic review On every Sogdell product line we have, every market that we operate in, how we're set up and structured operationally, what our back office systems look like. And so we I've been putting a lot of effort with our team here to create sort of a strategy for cost of the future. And luckily, we have a very strong foundation, some excellent products and Some incredible people that work for us. Speaker 300:14:10And so come towards the end of this year, we'll be reviewing that strategy with the Board of Directors And communicating something shortly after that to the market in terms of what we see the vision for Airbus to be In the short, medium and long term. Speaker 500:14:28Okay. Well, looking forward to that and Thanks for taking my question. I'll queue up. Speaker 100:14:34Thanks, Amit. Operator00:14:36Thank you. Our next question is from Jasru Bairn from TD Cowen. Please go ahead. Speaker 700:14:47Good morning. Speaker 400:14:50Good morning. Speaker 700:14:52So we you guys already answered our UEW question. So we only have one additional question. We're wondering if you could provide some color on the cost saving initiatives. Last quarter you noted that the majority of the then $5,000,000 in cost savings have been executed on. Is the majority of the $7,700,000 of cost savings executed on in Q3 or will some of it leak into Q4? Speaker 700:15:16Is that how we should think about it? Or if you could provide a bit more color, that would be much appreciated. Speaker 400:15:21Yes. Thanks, Jasvir. It's Frank here. Good question. Yes. Speaker 400:15:24The $5,000,000 that we mentioned after Q2 was fully executed and the remaining $2,700,000 substantially all of that That has been executed at the end of Q3. So we will start to see the full impact in Q4 for the full savings annualized $7,700,000 Speaker 700:15:45Okay, perfect. And then actually, I guess, I just wanted a clarification on the UEW strikes. So you guys had noted that it had an immaterial impact on Q3 results as well, right? Or was that just in reference to Q4? Speaker 300:16:00Yes. Q3, I'd say, was an immaterial impact. Q4 early in Q4, it's a more material impact. However, indications are that there's going to be some catch up on that volume. So there will probably be some impact in Q4, but we don't view it That's going to be overly dramatic, but at this point it's hard to estimate because not all the releases have come in yet from the customers That are forecasting exactly what their requirements are going to be by the end of December, but the indications from the different purchasing departments of our customers Is that they that we should prepare to run over time because they're going to need to make up that volume. Speaker 300:16:39So that's kind of in that in between phase that we're at right now. Speaker 700:16:44Okay, perfect. Yes, that's everything from us. I'll pull myself back in the queue. Thanks guys. Operator00:16:51Thank you. Our next question is from Theresa Lee from Valkyrie Capital. Please go ahead. Speaker 800:16:58Hi, guys. Speaker 200:17:01Good morning. Speaker 100:17:01Hi, Theresa. Speaker 800:17:03Hi. My question is more related to Free cash flow generation going forward, can you talk a bit about use of working capital in a if we're in an Economic downturn, do you generate more cash from working capital during that time? Speaker 400:17:21Teresa, this is Frank. Usually, yes, we continue to focus on deleveraging and obviously during economic downtimes, we're very focused on All the working capital levers to convert cash more quickly, managing our inventory and also being very cautious with our CapEx spend. Again, we monitor very closely and work with each of the segments to make sure we're maximizing the cash flow opportunity to continue to pay down debt. And so we're being very cautious and very aware as we move forward. I would suggest though, as we get into year end, as every company starts to tighten up things, there will be Pressure on free cash flow in Q4, but we anticipate continuing the trend that we've had so far this year into 'twenty four. Speaker 800:18:05Thank you. And is maintenance CapEx about where you are now, like about $4,000,000 a quarter or like what's the annual maintenance CapEx? Speaker 400:18:15Annual maintenance CapEx is usually in the $10,000,000 to $12,000,000 range and but we've been cautious obviously, but we'll continue to invest that where appropriate. Speaker 800:18:25Okay. So if you generate kind of cash flow of call it 25,000,000 a year $10,000,000 to $12,000,000 in maintenance CapEx and you have $10,000,000 to $15,000,000 in free cash flow to pay down debt annually? Speaker 400:18:44Right. Speaker 800:18:47Okay. Thank you. Operator00:18:49That's all. Thank you. Speaker 600:18:52Thank you. Operator00:18:53Our next question is from Ben Yekis from PI Financial. Please go ahead. Speaker 100:19:01Yes. I wanted to ask Speaker 700:19:04Can you hear me? Speaker 500:19:06Yes. Speaker 100:19:08I wanted to ask about the dividend cut and Can we read into that a certain payout ratio that is implied for 2024, 2025 or What made the $0.03 reduction come about and not say $0.02 or 4? It was Our best estimate of what we should be doing. Obviously, you can't pay out More money than you're earning for forever. The dividend had been increased significantly when The Defense Division was doing much better than it is now and when it had those big contracts. So right now, we have a focus on deleveraging with interest rates where they are. Speaker 100:20:14Our interest Costs are very high. And I think just the way the stock was trading, the market was Speculating that the dividend wasn't sustainable, could we have sustained to that 10? Yes, we could have, but we felt that we weren't getting any real benefit from doing that. And It also demonstrates to the market and our lenders that we are being Conservative and trying to maximize our deleveraging efforts. Okay, perfect. Speaker 100:21:01That's it for me. Operator00:21:06Thank you. Next question is from Adam McBain from Cormark Securities. Please go ahead. Speaker 200:21:13Great. Thank you. Good morning, guys. Just very quickly, most of my questions have been answered, but it's nice to hear your commentary around your commitment to paying down debt. I'm just Curious, more of a clarification question. Speaker 200:21:26What is your target ratio? Like where are you trying to take the balance sheet to going forward? Speaker 400:21:36Adam, this is Frank. I mean, obviously, if you look at us from a historical Our comfort level is leverage at below 2.5 and I think that's where we want to get to high ones, low twos, but we Continue to make that the biggest priority and continue to focus on converting cash, paying down debt and being very Efficient with how we're managing the cash flow and obviously been giving us some bandwidth To look at other strategic investments as required. Speaker 200:22:09Okay, got it. That's helpful. And then I realize that you've been reducing Some of the headcount in ADG. I'm just curious, if you were to win a large contract, how quickly would you be able to ramp up for that? Speaker 300:22:24Yes, we were very careful and very surgical in the reductions at ABG, which as Frank mentioned earlier, We expanded some of those same processes to find those efficiencies in the other two groups as well. And we did it very carefully so that there would be no impact in our ability to ramp up. We still have a very Large and healthy pipeline of opportunities and we want to make sure that we can capitalize on them when they happen. So We were very careful not to affect that ability to ramp up quickly with some of the changes that we made. Speaker 200:23:01Perfect. That's very helpful. Thank you very much guys. That's it for me. Speaker 400:23:06Thank you. Operator00:23:09We have the next question from Ahmed Abdulla, National Bank of Canada. Please go ahead. Speaker 500:23:16Yes. Just a follow-up. Are we expecting to see another add back of restructuring charges in Q4? Speaker 400:23:25Amit, it's Frank here. Not at this point. As I said, we're very careful and sure we did what we needed to do, which has been announced, but now we're really looking to execute on the strategy, the cash conversion and obviously the gained efficiencies as a result of the restructuring. Speaker 500:23:44Okay. Thanks for the color. Operator00:23:48Thank you. And last question this time from Kevin Chiang from CIBC. Please go ahead. Speaker 600:23:55Hey, Youssef. Thanks for taking my question. I apologize if some of this has been asked already. I jumped on another call here. It feels like your pipeline It feels pretty good, right? Speaker 600:24:10You've been talking about that for a few years here, just getting these orders through has been a little bit more challenging. I think if you take a step back here, I'm just wondering outside of some of the restructuring you've done and as you mentioned some of the The changes you made in ADG, just are you rethinking maybe the broader strategy here to maybe give yourself or things you can do to give yourself More earnings visibility or maybe reducing kind of the boom and bust nature of your earnings profile, just given But the contract comes through, you obviously earned multiples of what you're earning today. And if it doesn't, you're at a fraction of that. Just I guess strategically, how you think about that to Maybe smooth this out through the cycle. Speaker 300:24:58Yes, it's difficult to give too much color on that right now because we're right in the middle of that Sort of deep dive strategic review on all our product lines and kind of what we want to focus on and don't want to focus on. Certainly, the pipeline of opportunities for ABG is still very, very strong. Clearly, the government contracts related to executing on those opportunities have been a little bit elusive and we see governments struggling with funding, governments with debt ceiling issues and a bunch of Things like that, that make the conversion of that pipeline for us very frustrating and it does lead to sort of That boom and bust fluctuation where there are times where we have immense amounts of work and there are other times where We go dry for an extended period of time. So that fluctuation is something that concerns us, of course. And it's one of the many items that we're Considering in our strategic review in terms of how we want to be able to go to market with a more consistent expectation on revenue and Profit generation without these massive swings and what that means in terms of either broadening the portfolio and narrowing the portfolio, Adjusting the markets we serve, all these things are sort of on the table as we would like to find a way to a path to a more consistent Operating model based on the markets that we serve. Speaker 600:26:27And just I would have thought And maybe you would have thought the same thing and it'd be interesting to know what you're hearing from, I guess, the U. S. Defense Department and other defense bodies that you work with. But I would have thought what you sell into that end market Is more recurring in nature, more of a fixed spend versus when I think of Defense projects that typically get or are at risk or get cut during budget issues are usually larger Programs, fighter jets and things like that where you can maybe push that out or maybe more marginal programs. Just I guess, Is there do you have a different DoD situation today around maybe the recurring nature of some of this Because I would imagine you would need this equipment regardless where the budget is. Speaker 600:27:26So I guess I'm surprised that this is the stuff that's getting cut or this is the stuff that gets delayed, Just given it seems like a low dollar amount and obviously there's a significant PPD Component to this. Speaker 300:27:43Yes, it's I agree with you. I think we have that same expectation. Now having said that, Q3 was actually a pretty good quarter for us in terms of some singles and some doubles on some recurring business. We got A new CBRN glove order, we got a couple of Bunny Boot orders. So we're seeing some orders coming in. Speaker 300:28:07That's more that recurring nature that is sort of our At least our base business from that perspective. But it's interesting, you mentioned fighter jets and things like that. It seems like During times of conflict like we have now, those get more attention than some of the products that we have. And with the constraint on budgets and particularly the U. S. Speaker 300:28:34Government with the amount of support and other and all the G7 governments really, the amount of support that they're giving To the Ukraine and to other parts other hotspots in the world now, it seems to be really driving up sales of Things that are sharp and pointy versus the types of products that we make. But we have an expectation that Especially with some of the talk around chemical weapons and the threats of chemical weapons that at some point we're going to see a fairly significant Uptick on what we do, but we just haven't seen that yet. And it appears that with all the budget concerns, Some of the more sexy items are getting more attention, but we expect that Soldier Protection We'll always be there and we'll continue to drive revenue. But at this point in time, other than, like I said, a pretty good quarter in Q3 for some of that baseload business, Up until now, we hadn't seen much of it. Speaker 600:29:32And just last question for me. Does the U. S. This presidential election next year, does that impact when you look back historically, would that impact how orders would come through? Like Is next year a potential year where people are more reticent to spend just because you might have a change in administration? Speaker 600:29:55Or historically, when you look That's been kind of a non event in terms of impacting bids and potential orders. Speaker 100:30:14Obviously, the presidential election has an effect, although I think Both presidents are in favor of strengthening the military. The biggest issue we've had in the U. S. Is the Still made in Congress Speaker 700:30:33and Speaker 100:30:35the threats to shut the government down, Debt ceilings were passed on the condition that they took that they take unspent PPE money And call it back. So they had announced that they were going to build up a huge Strategic stockpile of PPE in case there was another pandemic, well, that hasn't happened and it's happened to some extent, but not certainly not to the extent that They've been talking about and one of the conditions that the debt ceiling was As the last time was that they agreed to call back unspent PPE money. So that directly hurt us. It doesn't change the need. They will need it, but it's not they need a new budget To pass it. Speaker 100:31:35So the political theater that's happening in the U. S. Is Not constructive. And Canada, not that we matter, but Our Prime Minister has seen fit to like we don't even come close to making our NATO commitments. Yes, our Prime Minister seems to see us fit to take $1,000,000,000 out of the defense budget, which is already 50% of what it should be. Speaker 100:32:10It's very frustrating, but that's what we're dealing with. Speaker 600:32:14No, it's no, that's those are all very good and very valid points. I'll leave it there. Thank you for taking my questions and best of luck to get through the remainder of this year. Speaker 100:32:26Thank you. Thanks, Kevin. Operator00:32:29Thank you. There are no further questions at this time. I will return the meeting back over The floor for closing remarks. Speaker 300:32:38Thank you, operator, and thanks again to everyone for attending today's call. Please reach out to us directly or through our Investor Relations team if you have any questions on our results or in general. Thank you and have a great day. Operator00:32:50Thank you. Your conference has now ended. Please disconnect your lines at this time and we thank you for your participation.Read morePowered by