BOS AirBoss of America Corp

AirBoss of America Corp. (TSX: BOS)(OTCQX:ABSSF) (the “Company” or “AirBoss”) today announced its second quarter results as it pursues new revenue opportunities through the remainder of 2022. The Company will host a conference call and webcast to discuss the results on August 5th at 9 a.m. ET, the details of which are outlined below. All dollar amounts are shown in thousands of United States dollars ("U.S. $" or "$"), except per share amounts, unless otherwise noted.

Recent Highlights        

• Generated EBITDA of $10.46 million;
• Net Debt to EBITDA ratio at June 30, 2022 (“Q2 2022”) was 1.29x;
• Declared a quarterly dividend of C$0.10 per common share; and
• Maintained an opportunity pipeline in excess of $1.5 billion at AirBoss Defense Group..

“Our results for the second quarter of 2022 showed the impacts of challenging market conditions and contract timing, beneficially offset by strong performance within our Rubber Solutions segment supported by an expanded product line-up and enhanced production capabilities,” stated Chris Bitsakakis, President and COO of AirBoss. “The Company continues to pursue strategies to mitigate the impacts of supply chain, input cost inflation, and labor challenges on each of our business segments. AirBoss has proven its ability to successfully deliver against large-scale supply agreements during challenging market conditions, and we believe this skillset combined with our expanded and highly innovative product lineup position us well to secure new sales from our strong pipeline of opportunities.”

“The Rubber Solutions segment continued to optimize production and capitalize on elevated demand in Q2 2022, and this led to significant growth over the corresponding period in 2021. New, specialized products and capabilities we have developed both in-house and through acquisitions have equipped this segment with an expanded portfolio of compounds and better access to our end markets. Our team has strong opportunities to further build our customer base and the profitability within Rubber Solutions.”

“For our AirBoss Defense Group segment, we remain competitively positioned to secure and execute on large-scale sales opportunities, supported by innovative products such as our Blast Gauge System which is focused on ensuring the safety of military personnel and increased military budgets worldwide which are creating opportunities for our traditional defense products like the Husky, Bandolier and CBRN-E equipment,” noted Gren Schoch, Chairman and CEO of AirBoss. “The demand drivers for the products in our ADG portfolio remain strong and our opportunity pipeline across the business continues to sit at record levels.”

	Three-months ended June 30			Six-months ended June 30
In thousands of US dollars, except share data
(unaudited)	2022	2021		2022		2021
Financial results:
Net sales	110,547	118,449		255,020		225,778
Profit	2,492	18,320		12,068		24,639
Adjusted Profit1	2,492	18,474		12,068		24,793
Earnings per share (US$)
– Basic	0.09	0.68		0.45		0.91
– Diluted	0.09	0.65		0.43		0.87
Adjusted earnings per share1 (US$)
– Basic	0.09	0.68		0.45		0.92
– Diluted	0.09	0.65		0.43		0.88
EBITDA1	10,460	24,914		30,155		39,304
Adjusted EBITDA1	10,460	25,068		30,155		39,458
Net cash provided by operating activities	9,878	(6,693	)	(22,808	)	(10,669	)
Free cash flow1	7,727	(9,731	)	(27,100	)	(18,947	)
Dividends declared per share (CAD$)	0.10	0.10		0.20		0.17
Capital additions	2,155	3,055		4,296		12,836
Financial position:	June 30, 2022			December 31, 2021
Total assets	462,421					443,264
Debt2	112,015					80,563
Net Debt1	90,612					56,033
Shareholders’ equity	243,436					235,148
Outstanding shares (#) *	27,092,041					26,993,181
*27,092,041 at August 4, 2022

1 See Non-IFRS and Other Financial Measures.2 Debt as at June 30, 2022 and December 31, 2021 include lease liabilities of $16,282 and $17,399, respectively.

Financial Results

Consolidated net sales for Q2 2022 decreased by 6.7% to $110,547 compared to the three-month period ended June 30, 2021 (“Q2 2021”). This decrease was primarily attributable to AirBoss Defense Group's (“ADG”) delivery of Powered Air-Purifying Respirators (“PAPRs”) and nitrile gloves to the U.S. Department for Health and Human Services (“HHS”) in the prior year, further decreased by softening in the Engineered Products segment. These decreases were offset by the increased sales at Rubber Solutions across the majority of its customer sectors. Consolidated net sales for 2022 year-to-date increased by 13.0% to $255,020 compared with 2021 year-to-date driven by a 51.6% increase in sales at Rubber Solutions.

Consolidated gross profit for Q2 2022 decreased by $18,503 to $14,800, compared with Q2 2021, driven by lower volumes at ADG related to PAPR and nitrile glove deliveries recognized in the same period in 2021 and lower volume at Engineered Products, partially offset by a strong improvement at Rubber Solutions driven by higher volumes. Gross profit as a percentage of net sales was reduced to 13.4% in Q2 2022 compared with 28.1% for Q2 2021, primarily due to a change in product mix at ADG, raw material, freight and labor related challenges impacting each segment to varying degrees and no government-directed wage subsidies compared to last year, partially offset by improvements at Rubber Solutions. Consolidated gross profit for 2022 year-to-date decreased by $12,677 to $46,401 compared with 2021 year-to-date, driven by lower volume at ADG and margin compression at Engineered Products due to labor, freight and raw material increases, partially offset by significant improvements at Rubber Solutions. Gross profit as a percentage of net sales decreased to 18.2% for 2022 year-to-date compared with 26.2% for 2021 year-to-date. These decreases were primarily a result of lower margin at the ADG and Engineered Products segments, including approximately $8,000 of government-directed wage subsidies recognized for the same period in 2021, partially offset by the continued improvement at Rubber Solutions.

Adjusted EBITDA for Q2 2022 decreased by 58.3% compared to Q2 2021 and decreased by 23.6% for the six-month period ended June 30, 2022 compared with the six-month period ended June 30, 2021.

Financial Position

The Company retains a $250 million credit facility and a net debt to TTM EBITDA ratio of 1.29.

Dividend

The Board of Directors of the Company has approved a quarterly dividend of C$0.10 per common share, to be paid on October 17, 2022 to shareholders of record at September 30, 2022.

Segment Results

Net sales in the AirBoss Defense Group segment decreased by 54.5% to $25,839 for Q2 2022 from $56,785 in Q2 2021 and by 11.8% to $89,801 for 2022 year-to-date, from $101,847 for 2021 year-to-date. In both cases, the decreases were primarily the result of delivery of PAPRs and nitrile gloves to HHS in 2021. Gross profit at AirBoss Defense Group decreased by 61.2% to $9,754 for the quarter and by 18.7% to $37,425 year-to-date, from the comparable periods in 2021. The decrease in gross profit for Q2 2022 was primarily the result of deliveries of PAPRs and nitrile gloves to HHS in 2021 and the elimination of government-directed wage subsidies, partially offset by favorable mix of certain other portfolio products. The decrease in gross profit year-to-date was primarily the result of deliveries of PAPRs and nitrile gloves to HHS in 2021 and the elimination of government-directed wage subsidies, partially offset by a continued focus on controllable operational cost containment and managing overhead costs.

In the Rubber Solutions segment, net sales for Q2 2022 increased by 50.9% to $63,180 and by 51.6% to $119,887 year-to-date from the comparable periods in 2021. For Q2 2022, volume was up 14.1% with increases across the vast majority of sectors due to increased momentum at most customers’ operations despite continuing supply chain challenges related to raw material supply and elevated freight costs. Year-to-date, volume was up 10.6% with increases across the majority of sectors and continued ramp up of most customers’ operations despite residual softness due to the COVID-19 pandemic. Tolling volume was up by 41.2% for the quarter and 15.9% year-to-date, and non-tolling volume was up by 8.8% for the quarter and 9.3% year to date, from the comparable periods in 2021.   Gross profit in the Rubber Solutions segment increased by 78.3% to $9,791 for the quarter and by 66.4% to $17,799 year-to-date, from the comparable periods in 2021. For the quarter, this was primarily the result of improvement in mix, increased tolling and non-tolling volumes and managing controllable overhead costs, partially offset by increased raw material, labor and logistics costs and the elimination of government-directed wage subsidies. Year to date, the increase in gross profit was primarily as a result of improvement in non-tolling volumes and managing controllable overhead costs, partially offset by increased raw material, labor and logistics costs and the elimination of government-directed wage subsidies.

At Engineered Products, net sales in the quarter decreased by 2.8% to $26,841 and by 5.5% to $56,681 year-to-date from the comparable periods in 2021.   For the quarter, the decrease was due to lower volumes in SUV, light truck and mini-van platforms related to the global electronic chip shortages combined with raw material shortages and freight and logistics bottlenecks, which continue to challenge production schedules across all OEMs and Tier 1 suppliers. Year-to-date, the decrease was due lower volumes in SUV, light truck and mini-van platforms compared to the same period in 2021. Compared to the same period in 2021, volume and sales decreased as the automotive sector continued to manage volume volatility given the challenges with the global electronic chip shortages in addition to freight and logistics constraints. Gross profit in the Engineered Products segment for Q2  2022 decreased to $(4,745) from $2,652 in Q2 2021 and to $(8,823) for 2022 year-to-date from $2,372 from 2021 year-to-date. For the quarter, this was primarily a result of a government-directed wage subsidy in 2021 and lower volumes in part due to the continued electronic ship shortages in addition to supply chain disruptions, partially offset by a continued focus on controllable operational cost containment. Year-to-date, the decrease in gross profit was primarily a result of a government-directed wage subsidy in 2021 and challenges associated with the global electronic chip shortages in the automotive sector combined with raw material shortages in addition to freight and logistics constraints higher labor, material and logistics costs partially offset by a continued focus on controllable operational cost containment and managing overhead costs.

Overview

The Company has continued to focus on operational execution, growth initiatives and investments while mitigating the impact of on-going global freight, labor and logistics challenges, raw material price escalations, constraints from the COVID-19 pandemic and increasing turbulence from geopolitical headwinds. Despite these evolving global challenges, AirBoss continues to focus on opportunities in AirBoss Defense Group’s (“ADG”) opportunity pipeline, with strong traction for the quarter in at AirBoss Rubber Solutions (“ARS”) and continued diligent work to address the related impacts to AirBoss Engineered Products (“AEP”). The Company remains committed to solidifying its position in the PPE, health care and survivability sectors and supporting its customers, employees and stakeholders.

Despite the challenging quarter, the Company continued to take the necessary risk mitigation steps within its supply chain by identifying alternative raw material sources both domestically and internationally. Continued recovery of volumes remains subject to the ongoing management of stable and sustained operations of businesses globally, which continues to be difficult to predict, especially considering the new and ongoing challenges including economic indicators driving inflation globally. Notwithstanding these challenges, including further constraints on our supply chain for the foreseeable future in 2022, the Company believes it is poised for continued opportunities during the remainder of the year.

ADG continues to target traditional defense contracts, potentially valued at hundreds of millions of dollars globally over the next several years, for its broader portfolio of survivability solutions, especially given the current conflict unfolding in the Ukraine. In addition, ADG continues to work on the significant opportunities in its opportunity pipeline, which remains in excess of $1.5 billion and is expected to help drive growth, subject to timing as delays in the conversion of these opportunities are expected to continue through the third quarter of 2022. Management believes that the future sourcing of PPE for first responders and healthcare professionals will continue to be a necessity and priority for front line workers, evidenced by the strong pipeline of PPE-related opportunities that ADG is currently pursuing. ADG also continues to focus on the commercialization of the new AirBoss 100™ Half Mask Respirator across its network, following the previously announced receipt of NIOSH approval for this product.

The Rubber Solutions segment saw strong demand that exceeded volumes for the previous quarter and exceeded volumes for the same quarter in 2021, while it continued to focus on optimizing its equipment capacity, specifically in Scotland Neck, NC. The ongoing integration of Ace Elastomers continues to deliver strong results with specialized products, expanded production of a broader array of compounds (white and color and enhanced flexibility in attracting and fulfilling new business through identified synergies and margin expansion. The Company continues to take advantage of its scale and global supply chain management expertise to onboard new customers seeking new suppliers to drive volume and growth, including expanding into the U.S. South and Mid-West by leveraging Ace's geographic footprint. AirBoss continued to invest in its research and development expertise to support enhanced collaboration with customers and better reflect the Company’s focus on innovative and proprietary technical solutions.

The Engineered Products segment continued to be impacted by significant raw material price increases, supply chain challenges, labor challenges and electronic chip shortages impacting OEM production schedules. Management remains committed to addressing key challenges in the anti-vibration business including margin improvement with targeted cost management, enhanced pricing strategies with raw material indexing and investments in advanced manufacturing. To further accelerate pricing strategies with key customers, management has engaged the services of a top tier advisory services firm focused on the immediate goal of price optimization across several platforms. AEP also continued to focus on its operational improvement plan by managing variable costs and sustaining a stable hourly workforce while dealing with volume reductions in the automotive sector, as well as its commitment to drive efficiencies and best-in-class automation. This included significant investment in new injection presses and state of the art automated work cells, as previously mentioned. The segment also continued its focus on diversification of its product lines into sectors adjacent to the automotive space.

Despite the continued headwinds associated with COVID-19, the Company’s longer-term priorities remain intact and include:

1. Growing the core Rubber Solutions segment by positioning it as a specialty supplier of choice in the consolidating North American market, with a growing focus on building defensible leadership positions in selected compounds;
2. Capitalizing on ADG’s enhanced scale and capabilities to pursue an array of growth and value-creation opportunities in the broader survivability solutions segment serving both defense and first responder markets;
3. Driving improved performance from Engineered Products through a combination of disciplined cost containment, client relationship expansion, new product development and sector diversification; and
4. Targeting additional acquisition opportunities across the business with a focus on adding new compounds and products, technical capabilities, and geographic reach into selected North American and international markets.

As before, management remains dedicated to the creation of long-term value for all stakeholders through a combination of strategic initiatives that both drive organic growth and support possible transactions.

Conference Call Details and Investor Presentation

A conference call to discuss the quarterly results is scheduled for 9:00 a.m. ET on Friday, August 5, 2022. Please go to https://www.gowebcasting.com/11895 or dial in to the following numbers: 1-800-319-4610 or 416-915-3239, pass code: 55506. Please connect approximately 10 minutes prior to the call to ensure participation. A replay of the conference call as well as the Company’s updated investor presentation will also be made available at: https://airboss.com/investor-media-center.

Investor Contact: Chris Bitsakakis, President or Gren Schoch, CEO at 905-751-1188.

Media Contact: media@airboss.com

AirBoss of America Corp.

AirBoss of America is a leading and diversified developer, manufacturer and provider of innovative survivability solutions, advanced custom rubber compounds and finished rubber products that are designed to outperform in the most challenging environments. Founded in 1989, the company operates through three divisions. AirBoss Defense Group is a global leader in personal and respiratory protective equipment and technology for the defense, healthcare, medical and first responder communities. AirBoss Rubber Solutions is a top-tier North American custom rubber compounder with 500 million turn pounds of annual capacity. AirBoss Engineered Products is a supplier of innovative anti-vibration solutions to the North American automotive market and other sectors. The Company’s shares trade on the TSX under the symbol BOS and on the OTCQX under the symbol ABSSF. Visit www.airboss.com for more information.

Non-IFRS and Other Financial Measures

This earnings release is based on financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”) and Non-IFRS and Other Financial Measures. Management believes that these measures provide useful information to investors in measuring the financial performance of the Company. These measures do not have a standardized meaning prescribed by IFRS and therefore they may not be comparable to similarly titled measures presented by other companies and should not be construed as an alternative to other financial measures determined in accordance with IFRS. These terms are not a measure of performance under IFRS and should not be considered in isolation or as a substitute for net income under IFRS.

EBITDA and Adjusted EBITDA are non-IFRS measures used to measure the Company's ability to generate cash from operations for debt service, to finance working capital and capital expenditures, potential acquisitions and to pay dividends. EBITDA is defined as earnings before income taxes, finance costs, depreciation, amortization, and impairment costs. Adjusted EBITDA is defined as EBITDA excluding acquisition costs, and non-recurring costs. A reconciliation of Profit to EBITDA and Adjusted EBITDA is below.

	Three-months ended June 30		Six-months ended June 30
	(unaudited)		(unaudited)
In thousands of US dollars	2022	2021	2022	2021
EBITDA:
Profit	2,492	18,320	12,068	24,639
Finance costs	1,533	1,134	2,485	1,681
Depreciation, amortization and impairment	5,492	4,830	10,989	9,493
Income tax expense	943	630	4,613	3,491
EBITDA	10,460	24,914	30,155	39,304
Acquisition fees	—	154	—	154
Adjusted EBITDA	10,460	25,068	30,155	39,458

Adjusted profit is a non-IFRS measure defined as profit before acquisition costs and non-recurring costs. This measure and Adjusted earnings per share are used to evaluate operating results of the Company. A reconciliation of Profit to Adjusted profit and Adjusted earnings per share is below.

	Three-months ended June 30		Six-months ended June 30
	(unaudited)		(unaudited)
In thousands of US dollars	2022	2021	2022	2021
Adjusted profit:
Profit	2,492	18,320	12,068	24,639
Acquisition fees	—	154	—	154
Adjusted profit	2,492	18,474	12,068	24,793
Basic weighted average number of shares outstanding	27,092	26,985	27,049	26,953
Diluted weighted average number of shares outstanding	28,193	28,374	28,225	28,269
Adjusted earnings per share (in US dollars):Basic	0.09	0.68	0.45	0.92
Diluted	0.09	0.65	0.43	0.88

Net Debt measures the financial indebtedness of the Company assuming that all cash on hand is used to repay a portion of the outstanding debt. A reconciliation of loans and borrowings to Net Debt is below.

	June 30, 2022		December 31, 2021
In thousands of US dollars	(unaudited)
Net debt:
Loans and borrowings - current	2,346		2,356
Loans and borrowings - non-current	109,669		78,207
Leases included in loans and borrowings	(16,282	)	(17,399	)
Cash and cash equivalents	(5,121	)	(7,131	)
Net debt	90,612		56,033

Free cash flow is a non-IFRS measure used to evaluate cash flow after investing in the maintenance or expansion of the Company's business. It is defined as cash provided by operating activities, less cash expenditures on long-term assets. A reconciliation of cash from operating activities to free cash flow is below.

	Three-months ended June 30				Six-months ended June 30
Three-months ended March 31	(unaudited)				(unaudited)
In thousands of US dollars	2022		2021		2022		2021
Free cash flow:
Net cash provided by (used in) operating activities	9,878		(6,693	)	(22,808	)	(10,669	)
Acquisition of property, plant and equipment	(1,923	)	(2,870	)	(3,757	)	(7,743	)
Acquisition of intangible assets	(228	)	(168	)	(535	)	(541	)
Proceeds from disposition	-		-		-		6
Free cash flow	7,727		(9,731	)	(27,100	)	(18,947	)
Basic weighted average number of shares outstanding	27,092		26,985		27,049		26,953
Diluted weighted average number of shares outstanding	28,193		26,985		27,049		26,953
Free cash flow per share (in US dollars):Basic	0.29		(0.36	)	(1.00	)	(0.70	)
Diluted	0.27		(0.36	)	(1.00	)	(0.70	)

AIRBOSS FORWARD LOOKING INFORMATION DISCLAIMER

Certain statements contained or incorporated by reference herein, including those that express management’s expectations or estimates of future developments or AirBoss’ future performance, constitute “forward-looking information” or “forward-looking statements” within the meaning of applicable securities laws, and can generally be identified by words such as “will”, “may”, “could” “expects”, “believes”, “anticipates”, “forecasts”, “plans”, “intends” or similar expressions. These statements are not historical facts but instead represent management’s expectations, estimates and projections regarding future events and performance.

Statements containing forward-looking information are necessarily based upon a number of opinions, estimates and assumptions that, while considered reasonable by management at the time the statements are made, are inherently subject to significant business, economic and competitive risks, uncertainties and contingencies. AirBoss cautions that such forward-looking information involves known and unknown contingencies, uncertainties and other risks that may cause AirBoss’ actual financial results, performance or achievements to be materially different from its estimated future results, performance or achievements expressed or implied by the forward-looking information. Numerous factors could cause actual results to differ materially from those in the forward-looking information, including without limitation: impact of general economic conditions, notably including its impact on demand for rubber solutions and products; dependence on key customers; global defense budgets, notably in the Company’s target markets, and success of the Company in obtaining new or extended defense contracts; cyclical trends in the tire and automotive, construction, mining and retail industries; sufficient availability of raw materials at economical costs; weather conditions affecting raw materials, production and sales; AirBoss’ ability to maintain existing customers or develop new customers in light of increased competition; AirBoss’ ability to successfully integrate acquisitions of other businesses and/or companies or to realize on the anticipated benefits thereof; changes in accounting policies and methods, including uncertainties associated with critical accounting assumptions and estimates; changes in the value of the Canadian dollar relative to the US dollar; changes in tax laws and potential litigation; ability to obtain financing on acceptable terms; environmental damage and non-compliance with environmental laws and regulations; impact of global health situations; potential product liability and warranty claims and equipment malfunction. COVID-19 could also negatively impact the Company’s operations and financial results in future periods. There is increased uncertainty associated with future operating assumptions and expectations as compared to prior periods. As such, it is not possible to estimate the impacts COVID-19 will have on the Company’s financial position or results of operations in future periods. While the direct impacts of COVID-19 are not determinable at this time, the Company has a credit facility that can provide financing up to $250 million. This list is not exhaustive of the factors that may affect any of AirBoss’ forward-looking information.

All of the forward-looking information in this press release is expressly qualified by these cautionary statements. Investors are cautioned not to put undue reliance on forward-looking information. All subsequent written and oral forward-looking information attributable to AirBoss or persons acting on its behalf are expressly qualified in their entirety by this notice. Forward-looking information contained herein is made as of the date of this Interim Report and, whether as a result of new information, future events or otherwise, AirBoss disclaims any intent or obligation to update publicly the forward-looking information except as required by applicable laws. Risks and uncertainties about AirBoss’ business are more fully discussed under the heading “Risk Factors” in our most recent Annual Information Form and are otherwise disclosed in our filings with securities regulatory authorities which are available on SEDAR at www.sedar.com.