AirBoss of America Q1 & AGM 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 10, 2023

There are 11 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the Annual General Meeting of the Shareholders of Airbus of America Corp. We are making today's meeting available through both the video and teleconference facility. Accordingly, I would like to welcome everybody who has been able to join us today in one form or another. I'm Gren Schoch, Chairman and CEO of AirBoss of America Corp. Joining me today are Chris Bitsycakas, President and COO Frank Yintillie, CFO Chris Figuero, EVP and General Counsel and Patrick Callahan, CEO of Airbus Defense Group.

Operator

I would also like to introduce our Board of Directors who are participating electronically: Anita Andronucci David Cannellari Mary Matthews, Robert McLeish, Steven Ryan and Alan Watson. For your information, we will start the meeting by addressing the formal agenda matters. Once all of these matters have been addressed, Chris Bitsiakakis, Frank Antille and I will each make a short presentation, including a discussion of our Q1 'twenty three results, a brief overview of our fiscal 'twenty two and an update on our strategic initiatives. We will then follow that with a Q and A session, where we would welcome questions from those of you on the conference call or the webcast. In conducting the business of the meeting, I would appreciate your cooperation in allowing us to move efficiently through the agenda.

Operator

In order to make the best of our time, certain shareholders have been asked to move and second resolutions, which we will consider at this meeting. I will call on them at the appropriate times. I would now like to call this meeting to order. Chris Mitsyakakis and myself will act as Co Chairs of the meeting and Chris Miguel will act as Secretary of the meeting. The Secretary is advised that the annual report containing the audited consolidated financial statements of the corporation for the fiscal year ended December 31, 'twenty 2, was mailed to shareholders of the corporation on April 6, 2023.

Operator

The notice of this meeting, the accompanying management information circular and form of proxy were also mailed to the shareholders of the Corporation on April 6, 2023. I direct that the proof of service be annexed to the minutes of this meeting, Chris Bitsycakas, myself and our Chief Financial Officer, Frank Cantile, will be available to respond to any questions concerning the financial statements during the general question period that follows the formal business. Before proceeding with the business of the meeting, I would like to take a moment to discuss the voting procedure. Each holder of common shares of the company is entitled to one vote for each common share held. There are 3 formal items of business to be dealt with today: a, to receive the annual report and financial statements of the corporation for the fiscal year ended December 31, 'twenty 2 B, to elect each of the 7 nominee directors for the Board for the ensuing year and C, to re appoint the corporation's auditors, KPMG LLP, for the ensuing year and the authorization of the directors to fix the auditors' remuneration, all as described in the management information circular of the corporation dated April 6, 2023.

Operator

With the consent of the meeting, representatives of Computershare Investor Services, Inc, the corporation's registrar and transfer agent, will act as scrutineers and report on the number of shareholders present in person and the number of shares represented in person or by proxy. I will now ask the Secretary to confirm the quorum for the meeting.

Speaker 1

Mr. Chairman, I confirm we have at least 2 persons present holding or representing by proxy 25% of the eligible votes, which results in a quorum.

Operator

As a quorum is present, I'd regard this meeting as property constituted. I directed the scrutineers' report on attendance via annex to the minutes of this meeting. As a first item of formal business, I'd like to ask Frank Antille to table Airbus' annual report to shareholders, which include the audited consolidated financial statements of the corporation for the fiscal year ended December 31, 2022, together with

Speaker 2

the auditors report. Mr. Chairman, the corporation's fiscal 2022 annual report is tabled. Thank you, Frank.

Operator

A copy of the 2022 annual report has been mailed to all shareholders who requested a copy. Copies can be found online under Airbus' profile at sedar.com. We will now move to the 2nd item of formal business, the election of 7 directors to Airbus' Board of Directors. Nominations have already been proposed by management in the proxy circular. All 7 of our current directors have agreed to continue serving on the Board of Directors.

Operator

Details about each of the directors' nominees are contained in this Shareholders are required to cast their votes for each individual director nominee rather than voting for the entire slate. The meeting is now open for nominations for the 1 of 7 nominees. Morozetti, would you please confirm or would you please nominate the individuals listed in the proxy circuit as directors for attending here?

Speaker 3

Mr. Chairman, I nominate each of Anita Annunuci, David Camilleri, Mary Matthews, Robert McLeish, Stephen Ryan, Pete Grenville Schack and Alan J. Watson as Directors of Airbus to hold office for the ensuing year or until their successors are elected or appointed.

Operator

Thank you. Nadine Cruz, will you second the nominations, please?

Speaker 4

Mr. Chairman, I second the nominations.

Operator

Thank you. Are there any other nominations? I declare the nominations closed. Morris Eddy, may I

Speaker 3

have a resolution, please? Mr. Chairman, I move the following resolution. Be it resolved that each of Anita Annunucci, David Camilleri, Mary Matthews, Robert McLeish, Stephen Ryan, Pete Grenville Schoch and Alan J. Watson be elected as Directors of AirBoss for the ensuing year or until their successors are elected or appointed.

Operator

Nadine, will you second the resolution?

Speaker 4

Mr. Chairman, I second the resolution.

Operator

Thank you. As you know, management solicited proxies for the business of today's meeting. On behalf of management, I've received proxies represented over a majority of votes cast for the election of each director, nominees in our proxy circular. Based on the proxy report received, greater than 90% of the shares voted were cast in favor of each of management's nominees. Accordingly, along with myself, the following other 6 nominees have been properly elected as Directors of Airbus for the coming year: Anita Antonucci, David Camilleri, Mary Matthews, Robert McLeish, Stephen Ryan and Alan Watson.

Operator

If any shareholder or proxy holder is interested in the exact number of votes cast for or withheld from each nominee, you can get the particulars after the meeting from the secretary. A press release and report on voting results indicating the detailed results of the vote on the election of directors will also be publicly filed after this meeting on SEDAR. This is the reappointment of KPMG LLP as the auditors of the corporation and authorization of the auditors to fix the litigation of the auditors. Morris, I may have a resolution, please.

Speaker 3

Mr. Chairman, I move the following resolution. Be it resolved that KPMG LLP, the present auditors of the corporation are hereby reappointed auditors of the corporation to hold office until the close of the next annual meeting of shareholders or until their successors are appointed and that the directors of the corporation are hereby authorized to fix the remuneration of the auditors in certain amounts as the directors may incur discretion determined for the current fiscal year.

Operator

Nadine, will you second the resolution?

Speaker 4

Mr. Chairman, I second the resolution.

Operator

Thank you. On behalf of management, I have received proxies representing over a majority of votes cast for the reappointment of KPMG LLP as the auditors of the corporation and authorization of directors to fix the remuneration of the auditors. Based on the proxy report received, greater than 90% of the votes cast were cast in favor of the resolution. Accordingly, I declare it carried. If there is no further business for this meeting, I will request a motion that the formal meeting be terminated.

Operator

Morris, would you please bring a motion to terminate the meeting?

Speaker 3

Mr. Chairman, I move that the meeting be terminated.

Operator

Thank you. Nadine, will you second the motion?

Speaker 4

Mr. Chairman, I second the motion.

Operator

Thank you. All those in favor of the motion, please raise your hands. Anybody opposed? I declare the motion carried and the formal business of the meeting concluded. Ladies and gentlemen, I will now make a presentation and announcement regarding the Chairman's awards.

Operator

Following Makos Mitsakakis, President and COO, Hubert Bass will give an overview of our current operations and following Frank, Aptily Chief Financial Officer, will discuss our financial results and outlook for 2023. We will now with the formal meeting over, we'll now move on to our management presentation. In terms of an agenda, we'll start with the Annual Chairman's Awards, followed by a management presentation and overview of our Q1 results, which were released yesterday. And then we'll take questions starting with analysts covering our company and then from shareholders. To respect people's time, we will do our best to be expedient.

Operator

Every day at Airbus, there is inspirational work being done across all divisions and departments with team members going above and beyond to ensure our continued success. In 2019, we created our annual Chairman's Award Program to formally recognize the special efforts made by Airbus employees. It is a peer to peer recognition program that has employees identify, recognize and appreciate a broad range of strong contributors who will go above and beyond for Airbus. When selecting the Chairman's recipient, we ensure that we have strong representation of our Airbus employees by presenting an award to 1 peer nominated hourly employee and 1 peer nominated salary employee, who have both shown exceptional dedication and commitment as they have gone above and beyond for Airbus. I'm pleased to announce that yet again, we have had great employee participation this year with the highest number of nominees to date, totaling 236 employees nominated from across the organization and the selection of 13 divisional winners.

Operator

From these 13 divisional winners, there were 2 employees that stood out and best exemplified the Chairman's award attributes. We're delighted to announce today that this year's winners are John Eyre, Director of Quality from ADG Facility in Jessup, Maryland and Nadine Erwin, Production Operator from our AEP facility in Auburn Hills, Michigan. John is a quality director for ADG. Over the course of 2022, he continuously supported ADG as it navigated through some difficult challenges. He also works tirelessly to ensure that the quality systems are consistent across ADG's various locations.

Operator

John has a passion for quality and team members describe his approach as refreshing and informative. He's a great collaborator who goes the extra mile to support the organization. Now, Dean works as a line leader at in Auburn Hills and has been with the company for nearly 29 years. She is often described by others as an outstanding hard worker who takes the time to mentor and train your colleagues. She inspires her team, has everything necessary to be more efficient and makes others on the floor feel welcome.

Operator

Her extensive experience, coupled with her solid troubleshooting skills, gives her the ability to achieve positive results and adapt to fast paced occasions. Despite her daily workload, she always takes the time to help others reach their goals to become a better AirBoss employee. She is a wonderful contributor to AirBoss and a valued member of our team. To recognize their efforts, John and Nela will both be receiving the 2022 Chairman's Award Trophy, a cash award and a few other prizes that will be given at a later date. On behalf of the Board and our shareholders, I want to take this opportunity to thank all nominees and winners across the organization for their outstanding contributions to their BOSS.

Operator

With that, I would now like to turn the meeting over to Chris Visakakis for a review of our results. Chris?

Speaker 5

Thank you, Gren. Thank you to all of those that are joining us virtually today. As a reminder, this presentation contains forward looking statements, including our estimates of future developments. We invite listeners to review risk factors related to our business in our annual information form and our MD and A, both of which are available on SEDAR and our corporate website. Also, we will discuss certain non GAAP measures, including EBITDA, adjusted EBITDA, adjusted profit per share.

Speaker 5

Reconciliations of those measures are available in our MD and A. And finally, please note that the foreign currency is in U. S. Dollars. On the heels of record financial performance and growth in 2021, our focus in 2022 was on the integration of and execution from Airbus' recently expanded operating platform.

Speaker 5

Many of the business challenges we faced in 2021, including raw material sourcing and cost inflation, persisted last year as well. So the work of our team to capture production and cost efficiencies throughout business segments took on new importance. In 2022, consolidated sales totaled $477,000,000 which while well above the sales levels we posted prior to the pandemic, fell short of the record revenues we delivered in 2021. Reduced sales within our AirBoss Defense Group due to the decrease in large scale deliveries of PPE in 2022 were the primary source of year over year decline. I'm pleased to report that within 2022, we made important new inroads across the business.

Speaker 5

We achieved record results within our Airbus Rubber Solutions business segment and we returned to gross margin contributions from Airbus Engineered Products in the 4th quarter, which as Frank will discuss later, has continued in Q1 2023. We knew we were up against a fairly challenging set of financial comparables from 2021, but nonetheless, we're encouraged by the advancements made across many parts of our business throughout 2022. I want to take a moment to highlight our track record of dividend growth. Since the time we first started issuing dividends on our common shares in 2010, we have delivered annual dividend growth averaging approximately 15%. We continue to view our dividend as an important part of the total returns we offer to our investors.

Speaker 5

Looking now at our segmented businesses, I'll start with some background on Airbus Defense Group. AVG offers industrial and military grade protection against a variety of threats to human life. Its products range from personal protective equipment or PPE for healthcare settings to innovative solutions for blast monitoring and other applications designed to protect military and law enforcement personnel. Our mission is to leverage AirBoss' expertise in engineering design, manufacturing and supply chain management to build ABG's leadership role in the survivability solutions value chain. In 2022, ABG contributed $133,000,000 in net sales and gross margins of negative $11,000,000 reflecting an impact of an inventory write down we had to take within this business segment in quarter 3.

Speaker 5

In the latter part of 2022, ADG successfully secured a series of new contracts. The most recent, which was since in December, involves the delivery of made in America COVID testing kits to the Defense Logistics Agency in the U. S. This contract win is tangible evidence of our strengths as a key supplier to large scale customers and our ability to collaborate with industry partners to enhance our market access. Overall, despite a lower level of activity compared to record results in 2021, ABG made tangible progress last year and remains well positioned to capture new opportunities in 2023.

Speaker 5

Moving next to Airbus Rubber Solutions. On the back of strong advancements made in our customer, rubber compounding capabilities, ARS delivered record financial results in 2022. From a strategic perspective, the focus for ARS has been on improving margins through the introduction of higher margin compounds and growing specialty and color compounding within our overall mix of business. These efforts, along with investments made to improve automation and efficiency, led to record annual net sales of $236,000,000 and gross margins of 33,000,000 Our long term priorities for ARS remain intact to deliver growth by positioning ARS as a leading specialty supplier in North America, one with an innovative portfolio of specialty compounds combined with strong production capabilities. Turning now to Airbus Engineered Products or AEP.

Speaker 5

We are very pleased with the progress made within 2022 and the changes within AEP that have improved the positioning and resilience for the long term. The AEP team made important advancements in 2 key areas. The first was an internal focus on strengthening its operations through automation, capturing operating cost efficiencies and developing innovative products with better margin profiles. The second part was to advance its external relationships with new customers as well as its existing long term customers. Its product development initiatives supported efforts to extend AEP's customer reach into new non automotive industries and diversify its market participation.

Speaker 5

Importantly, in 2022, we delivered on our commitment to working with AEP's key long term partners and customers to resume a more stable financial footing for its continued operation. With rapid cost increases related to personnel, logistics and raw materials, it was essential for us to reestablish contract pricing and terms within AP that better accommodated these market changes. I'm excited to say that with the successful updating of our arrangements with our key partners, we've been able to reverse the pattern of operating losses and resume profitable performance within AEP. With that, I'll now turn it over to Frank for a review of our Q1 twenty twenty three financials. Frank?

Speaker 2

Thank you so much, Chris, and good morning, everyone. As Chris mentioned, any dollar amounts for references to dividends per share, which are in Canadian dollars. To be respectful of your time today, I'll aim to be brief in my summary of our Q1 2023 results. Starting with Airbus consolidated results, net sales for Q1 2023 were $117,100,000 a decrease of 19% from the prior year, primarily due to the absence of certain contract deliveries within ADG for the same period in 2022, partially offset by increased sales within our AEP business segment. Q1 adjusted EBITDA decreased to $10,300,000 driven by the decrease in gross profit.

Speaker 2

Q1 adjusted profit was $1,600,000 or 0 point 6 dollars per diluted share. ADGs net sales in Q1 2023 came in at $28,600,000 The year over year decrease in net sales was due to delivery towards the HHS Nitrile Glove contract in Q1 of 'twenty two. Gross profit and ADG in Q1 was $8,700,000 or 30.5 percent of shares. Net sales in our Rubber Solutions segment came in at $55,200,000 or a decrease of 2.7% compared to Q1 of 'twenty two. The decrease was mainly driven by reduced momentum at our customers' operations as a carryover from softness in Q4 'twenty two.

Speaker 2

Overall, volumes were down 24.1 percent and this was partially offset by the slightly more favorable mix. Gross profit within ARS was $7,600,000

Speaker 3

which was

Speaker 2

a decline of 5.3 percent from Q1 of 'twenty two due to lower volumes and the impacts of product mix. Net sales in our Engineered Products segment increased 37.1 percent to $40,900,000 supported by higher volumes in SUV, light truck platforms during the quarter and the continued trend towards positive gross margins at AEP delivered in Q4 of 'twenty 2. Q1 'twenty three gross margins for the business segment were $5,600,000 Turning again to our combined results, operating cash flow, excluding working capital was $7,300,000 in Q1 of 'twenty three. Cash flow provided by operating activity during the quarter was $6,000,000 dollars CapEx in Q1 'twenty three came in at $800,000 versus $2,100,000 of Q1 'twenty two and related minor plan upgrades were within ARS and AEP. Our net debt at the end of Q1 'twenty three was $107,600,000 We maintain a revolving credit facility of $250,000,000 with an accordion feature of an additional $75,000,000 currently $126,600,000 is drawn against our debt facility.

Speaker 2

And now Chris, back to you for closing remarks.

Speaker 5

I want to take a moment to remind our investors of the combined capabilities we bring from across our company and how we use these to create and maintain competitive advantage in our core markets. We have strategically built AirBoss so that we can share strengths and best practices across our platforms as we bring value to our customers through multiple channels. Our core skill set is in manufacturing and marketing high quality, proprietary, rubber based products and other products for numerous applications, including defense, heavy commercial, automotive and others. We share our skills and resources across our platform to drive growth and profitability for all three of our business segments, Airbus Defense Group, Airbus Rubber Solutions and Airbus Engineered Products. We're committed to using our scale, our ability to capture operating efficiencies and our innovation skills to bring long term value to our customers.

Speaker 5

Our work to build Airbus' base of domestic manufacturing efficiencies has brought important value as we address the changing requirements for our customers and markets. Our manufacturing capacity as well as our proven track record of successfully managing complex international supply chains place us in a strong position to pursue new large scale government contracts, which is a key focal point for us in 2023. We have a number of initiatives underway that support our growth prospects for 2023. For ADG, we continue to see sales opportunities for the expanded portfolio of survivability solutions ADG is able to bring to the table. As we execute on announced business, we continue to pursue new contracts to deliver PPE consumables and also to supply innovative new survivability solutions to the defense and first responder markets.

Speaker 5

For ARS, we plan to strengthen the momentum built in the business in 2022 with further expansion of our portfolio of compounds and improvements in the segment's overall margin profile. We continue to view acquisitions as a potential source of new products that fit well with our client base and skill set and that fortify our supply chain. And for AAP, we see opportunities to strengthen this business with new product innovations, more emphasis on higher margin products and diversification to new end markets. We look forward to keeping in touch with all of you about the progress we are making in the business in 2023.

Operator

As we wrap up our prepared remarks, we would like to thank the team at AirBoss for their dedication and work ethic throughout 2022 and as we progress into 2023. The performance of our business from both an operations and financial perspective are made possible by the contributions our employees make every day to innovate, drive production efficiencies and capture new market opportunities. We are grateful for the dedication and persistence of our entire Airbus team. We also want to recognize the valued relationships we maintain with our customers and suppliers. Our partnerships with you remain a valuable point of differentiation and a pride for us as a company.

Operator

I also want to thank our covering analysts, bankers, auditors and advisors for their support throughout 2022. And finally, I offer my thanks to our shareholders for their ongoing support to Airbus. We will now start the Q and A session. Please be patient as we will aim to start with the sell side analysts covering the company followed by shareholders. As mentioned at the opening, this meeting is being made available both by conference call and by webcast.

Operator

As an administrative convenience, we will now take the questions from those who have submitted questions through the conference call line and then open up the meeting to questions from those attending by webcast. After which, we'll then open the floor for questions from individuals attending here in person. At this time, we'll proceed to questions, if any, which are queued up in the conference line.

Speaker 6

Thank you. Your first question is from Ahmed Abdulla with National Bank of Canada. Please go ahead.

Speaker 7

Yes. Thank you and thank you for taking my question. The first question I'll ask on Rubber Solutions segment. You called out the volumes were down about 24 percent with vast majority of sectors being down. Can you call out maybe or elaborate further on has there been a customer sector that was more of a drag versus another one?

Speaker 7

And how are your inventory levels at your customers right now looking ahead? Thank you.

Operator

Chris, I'll ask you to take that.

Speaker 5

Thank you for the question. It's a great question. Most of that reduction was in our tolling volume. And just if you recall, when we talk about tolling volume, that is related to customers that have large scale custom mixing or compounding capabilities of their own that are able to in source some of the material that they source to us throughout the year. So the largest drop was in that tolling mixing component.

Speaker 5

As you can see, we were able to make up some of that through focusing on more specialty compounding, but that is the main drop from there. But as we've progressed towards the end of the quarter, some of that started to rebound. We saw a little bit of that drop towards the end of Q4 and went into the first half of Q1 and started to rebound towards the end of Q1. So in terms of inventory levels, much of the inventory levels that they were carrying are starting to be depleted. So we're starting to see some more ordering that's a little bit more normalized.

Speaker 5

But again, on the tolling side, we're not seeing the massive return of all that volume, but we have some significant non tolling opportunities that are coming forth here in Q2 and Q3 that we feel pretty confident we'll be able to replace much of that volume.

Speaker 7

Okay, thanks. And on the Engineered Products, you called out that the increase was due to higher volumes in SUV and light truck platforms, but we all are aware of improved arrangements with your customers. How much of that net sales increase was really also an adjustment to the pricing with key customers?

Speaker 5

Yes, I think it's fair to say that the majority of it was the price negotiation the result of the price negotiations with our customers that were then supported by some additional volume on the light truck and

Speaker 2

SUV market.

Speaker 7

Okay. Thank you very much. I'll queue up.

Speaker 6

The next question is from David Ocampo with Cormark Securities. Please go ahead.

Speaker 8

Thanks. Good morning, everyone. I guess I just wanted to start first on AEP. When I take a look at the revenue increase there, obviously, quite strong at 37%. I was wondering if you guys could break down how much of that lift is from commercial negotiations versus an improvement in volumes?

Speaker 5

Yes. Thanks, David. As I mentioned earlier, the majority of that was from the commercial negotiations and that was further supported with some additional volume. And we also have some new products that are coming online. But I'd say the result of the negotiations in Q4 of 2022 resulted in much of that improvement.

Speaker 8

Got it. And then if I take a look at the automotive market, and this is something that's similar that I'm hearing from other auto parts suppliers, that scheduling could still be quite erratic from OEMs. But if I take a look at the profits for AEP, it's the highest it's been in several years. So how much more profitability can you extract from this division when market conditions return to, I guess, more normal conditions?

Speaker 5

Yes, there has been the odd shutdown here and there with our customers taking a week out here, a week out there. And they are going into a difficult negotiating year with the UAW and Uniphore contracts in the fall of this year. But I'd say we've really done a lot of work, not just on the commercial arrangements with our customers, but also on the automation and the new equipment that we put into that place. Airbus Engineered Products is running more efficiently than it's ever run. Our direct labor percentage is at a record low levels compared to many years before.

Speaker 5

The automation is really kicking in and really doing a good job for us. Scrap rates are the lowest they've ever been. So from a pure efficiency standpoint, that plant is running better than it's ever run. You combine with that the fact that we now have a commercial arrangement that allows us from a pricing perspective to develop positive gross margins versus negative gross margins, AEP is now really well positioned for really taking advantage of any improvement in the automotive market and really being able to do better than it's doing now even.

Speaker 8

That's great to hear. And then my last one is just on defense. I think I chatted about this with you guys for the last few quarters, but the margin profile increased to call it 15% on an EBITDA basis this quarter. That's a notable improvement from Q3 and Q4, but it still remains below pre pandemic levels. So just wondering what it's going to take to get back up into that closer to 20% range?

Speaker 5

Yes, because of the breadth of the products that we have at AirBot Defense Group, it really becomes a product mix issue. At what point are we selling what and what are the gross margins look like? Some of the new products that we have teed up and coming into the pipeline that we have, have significantly higher gross margins. Some of the products that are more of a pass through have lower gross margins. So I think you're going to see a little bit of that volatility on the gross margin side.

Speaker 5

But as we convert some of the higher margin opportunities in our pipeline, I think you'll see that swing upwards when those are being delivered. And then depending on the product mix, it'll be up and down that way. But like I said, we have products that are significantly higher than the gross margins we've posted this quarter. And as those sell more and take more of that gross margin dollar space, you'll see that percentage increase.

Speaker 6

The next question is from Kevin Chiang with CIBC. Please go ahead.

Speaker 9

Hey, thanks for taking my question. I apologize if you addressed some of this earlier. Just within your Rubber Solutions group, when you look at the trends through the quarter, just wondering how that evolved? Was it pretty steady in terms of the softness, just given the economic backdrop? Or did you exit March and maybe you can give a comment on April and early May here as well or have things gotten softer as you progress through the year here?

Speaker 5

So as you know, Kevin, towards the end of Q4, we saw a significant drop in volume. And I think, as I mentioned earlier, a big portion of that was our tolling customers bringing some of that volume in house to their own mixing lines because they had open capacity, which is an indication of softness in the space that they're in. And because of that, we, of course, felt that quite a bit at the end of the Q4 and in the first half of Q1. Towards the second half of Q1, some of that volume started to rebound. So, February is better than sorry, February was better than January, March was better than February.

Speaker 5

And April has continued to improve and May has continued to improve. Not back to the levels of the peak that we had when all the tolling business was in, but we have not seen any additional softening beyond what we already saw.

Speaker 9

Well, that's great color. And maybe I'll just ask from a high level, I know you obviously have 3 operating segments, mix plays an issue. But when you look at the EBITDA, you put out this quarter, roughly $10,000,000 Do you see that as a good floor just given all the puts and takes that you're facing here, both from an economic perspective, but you've obviously restructured parts of your AET business, which is a tailwind here. Just how you think about the run rate EBITDA holding around $10,000,000 here in the current economic environment?

Speaker 5

Yes, it's a little difficult to answer that question. I think really when you look at Airbus Rubber Solutions, I think that's fairly predictable. The tolling volume that we have sort of missed out on towards the end of Q4 and early in the year, We have some very good plans to replace that with more specialized compounding that's going to kick in towards the latter the second half of this year. And so we're pretty confident there. Airbus Engineered Products, the same thing.

Speaker 5

We're very pleased now because as I mentioned earlier, the plant is running more efficiently than it's ever run before. And our commercial arrangements are such that the margins that the pricing is driving are now positive and not negative. So we're in a good position there and a bit more predictable. ADG, of course, is a little bit less predictable that way because the type of products that we have, there's like wild swings upwards and wild swings downwards and we have to kind of understand that that's a very lumpy business. So we're pleased with the results in Q1.

Speaker 5

We're not yet able to give any guidance specifically on ADG because that has the greatest potential for massive upside movement and also has some potential for some quarters that are relatively low. So as we go forward, we're pleased with Q1. But until we get some additional clarity on the Airbus Defense Group and the conversion of some of those pipeline opportunities, it's hard to give exact an exact answer to that question.

Speaker 9

And just about all the debt ceiling, I guess, concerns in the U. S, is that impacting how you think about converting that pipeline? Or I know it's a little bit slower than you had hoped, but pushing that out even a little bit further to the right here just given some of the, I guess, politics at play in the U. S. Today?

Speaker 4

Operator, can you confirm my audio?

Speaker 6

Yes, I can confirm that I can hear you.

Speaker 9

It's Kevin from CIBC. I'm not sure if I'm still on here.

Speaker 6

You are still on.

Speaker 9

Excellent. I'm not sure if I need to repeat my last question or if you got that. Can you

Speaker 4

hold one moment? You will need to repeat. Can you hold one moment?

Speaker 5

Hi, I don't know. Kevin, if you can still hear me. Did you get the latter part of that?

Speaker 9

Yes, I can hear you.

Speaker 5

Yes, for sure. That was Kevin. I'm just talking technical glitch here.

Speaker 9

Yes. Not a problem. I'll just quickly repeat my question. I was just asking whether the debt ceiling concerns in the U. S.

Speaker 9

Are impacting some of the conversations you're having as you look to convert your pipeline here?

Speaker 5

Yes. No, at this point in time, the debt ceiling issue in the U. S, we're not hearing any sort of impact to some of the things that we're bidding on. As you know, many of the things that we are bidding on have been in the pipeline for a while and have been and because of the nature of those, we have not heard any specific concerns about the products that we're bidding on yet.

Speaker 9

Perfect. I'll leave it there. Best of luck as you get through 2023 here. Thank you very much. Yes.

Speaker 5

Thanks, Kevin.

Speaker 6

The next question is from Ben Yekic with PI Financial. Please go ahead.

Speaker 10

Hey, good morning guys. A couple of questions and I'm sorry if parts of them have been repeated. One is on G and A expense,

Speaker 5

Yes. So the question I'll pass over to Frank is about G and A expense in Q1 versus Q4 and why the increase?

Speaker 2

It's Frank here. Thanks for the question. Yes, we had some additional administrative costs that we view as not recurring and Q4 would be more of the run rate going forward, but there were some additional costs associated with legal. Also some of the stock comp recognized previously, which we've now hedged, has been mitigated as we move forward as well.

Speaker 10

Right. Actually, the increase was on an annual basis to about $3,000,000 but okay. So some of this will not be repeated then?

Speaker 2

Correct, Ben, yes.

Speaker 10

Okay. And then my other question is just on modeling AEP revenues without really obviously asking for guidance or anything, but given that we are dealing with now increased prices, if we assume that the volumes are going to stay the same, is it then reasonable to sort of model $35,000,000 to $40,000,000 a quarter?

Speaker 2

No. What yes, Ben, what we said in the last quarter is that if you look at 2019, that's a more normalized run rate on an annual basis, basically dividing it up by the quarter, so in the $125,000,000 range for an annual sales target.

Speaker 10

Okay. So even the Q1 revenue had some sort of back payments that won't be repeated for the remaining quarters?

Speaker 2

Well, yes, I understand that there was, yes, some spillover, but also we continue to negotiate with customers and suppliers beyond the group that were negotiated during Q4. So there's obviously additional upside that's reflected in that run rate.

Speaker 10

Got you. Got you. And maybe I can some of these questions from the defense group kind of leave it off for offline. But generally, what is the visibility? Like if we take away the large but future contracts where we don't know the timing and something that you are expecting any day.

Speaker 10

But those kind of middle of the line like the stuff that you reasonably would expect in the next 3 to 6 months to win? How does the visibility there look?

Speaker 2

I mean, I guess that's something that Chris could probably answer better. But then the anticipation is there's the opportunities and obviously it's just a question of timing, which has shifted to the right. So it makes it a little bit difficult. But having said that, keep in mind the ADG base business, specifically, for example, in the Actonville and the industrial side, the rubber business that obviously is moving forward at a more historical run rate. And then there's some of the other product portfolio that again continue to move forward to drive the sales.

Speaker 2

But there's a big expectation on some of the bid pipeline to be converted later this year, as Chris mentioned.

Speaker 10

Okay, got you. Thank you very much.

Speaker 6

There are no more questions in the queue. I'll hand it back to you.

Speaker 2

Thank you.

Speaker 5

Okay. Thank you. I guess there are no more questions in the queue. Before we sign off, I'd like to apologize to everyone for some of the technical difficulties we had today at this at our AGM. Thank you for taking the time for listening.

Speaker 5

And if there are any further questions, please feel free to reach out to us. Have a great day.

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Earnings Conference Call
AirBoss of America Q1 & AGM 2023
00:00 / 00:00