AirBoss of America Corp.

Welcome to the Airbus of America fourth quarter 2021 earnings conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Grant Schoch, chief executive officer. Please go ahead, sir.

Thank you, operator. Good morning, everybody, and thank you for joining the Airbus Q4 and full year 21 results conference call. My name is Grant Schoch. I'm the chairman and CEO of Airbus. Here with me today are Chris Vitsakakis, our president and COO, Frank Ntili, our CFO, and Chris Fegel, our EVP and General Counsel, is on the conference call. In terms of an agenda, we will take a few minutes to review some operational highlights for the quarter and a year, briefly review our financial results before opening the call to questions. Before we begin, I'd like to remind you today's remarks include non-IFRS measures. Reconciliations between our IFRS and non-IFRS results can be found in our MD&A. Additionally, management outlook for 22 and beyond, anticipated financial operating results, our plans and objectives, and our answers to your question will contain forward-looking information within the meaning of applicable securities laws. In particular, expectations around the impact of the COVID pandemic potential acquisitions, results of operations and financial condition, and that of our customers and partners are uncertain and subject to change. This forward-looking information represents our expectations as of today and accordingly is subject to change. Such information is based on current assumptions that may not materialize and is subject to a number of important risks and uncertainties. Actual results may differ materially and listeners are cautioned not to place undue reliance on this forward-looking information. A description of the risk that may affect future results is contained in AIRBOS's AIF and MDA, which is available on our corporate website and in our files of CEDAR at www.cedar.com. With that, I'm going to turn the call over to Chris for an operational review.

Thank you, Glenn, and good morning, everyone. I am pleased to report that 2021 was another strong year for AIRBOS in terms of growth, profitability and free cashflow generation. Our ability to deliver results despite the complex and ever-changing environment was bolstered by two key acquisitions, Black Box Biometrics or B3 and Ace Elastomer, solidifying the medium to long-term scale of our business. In Q4 of 2021, we generated our highest quarterly net sales in the company's history, coupled with the largest cashflow generation ever delivered by Airbus in one quarter. In 2021, we utilized our financial flexibility to accomplish multiple strategic growth initiatives, and they are as follows. We completed delivery of our powered air purifying respirators and related peripherals to HHS, and then started to execute an even larger HHS order for nitrile gloves, becoming the number one importer of nitrile gloves to the United States for the year. We announced a record and continually growing pipeline in ADG of over US dollars 1.5 billion, the largest in the company's history. We completed payments related to the acquisition and a full control of the Airbus Defence Group. We acquired B3, giving us full control and protection of its blast gauge technology prior to anticipated sourcing of major government contracts for overpressure protection for soldiers. We invested in the design and development of our Airbus 100 half-mask respirator, a more portable alternative to our successful flexor-powered air purifying respirator at a lower price and have just recently received NIOSH approval for this exciting new product. We successfully completed the acquisition of Ace Elastomer, which has propelled Airbus rubber solutions into a market-leading position in color and specialty rubber compounding, and this has expanded our geographic penetration in the U.S. and will also help facilitate further growth westward. And at Airbus Engineered Products, we completed our modernization program, having now invested in and installed new technology to improve automation and efficiency. We were able to increase our quarterly dividends by 43%, We renewed our normal course issuer bid, and we increased our revolving credit availability to $250 million, up from $60 million at the end of 2020, with an accordion of $75 million, up from $50 million, providing enhanced financial flexibility to fund large contract working capital requirements, as well as opportunistic acquisitions. Our strategic and careful use of our financial flexibility in 2021 has put us in a position to continue to grow organically and inorganically And despite the significant investments, we expect to find ourselves in a similar financial position with growth momentum going forward. We are entering 2022 in an extremely strong financial position, along with a record growth pipeline of opportunities of over $1.5 billion, the largest in the company's history. Our balance sheet strength provides us with enhanced flexibility to execute on more large-scale contracts and positions us well to execute opportunistically on both organic and inorganic growth initiatives, broadening our product lines and regional presence, particularly as potential acquisition targets may lack the balance sheet strength to weather any economic challenges that may arise. The company's ability to generate cash and utilize that cash to continue to grow is a derivative of the solid operational and tactical execution of detailed growth plans driven by a strategic focus on productivity, innovation, and diversification as the main driving forces behind both top and bottom line growth. Notably, we introduced a combination of domestic sourcing and advanced buying tactics, along with developing alternative raw material sources, both domestically and internationally, to help mitigate the impact of numerous global challenges on our business. Despite the significant and extensive obstacles associated with COVID-19, including unprecedented supply chain challenges and record raw material price increases, we continue to perform well on a consolidated basis and effectively manage our operations through the fourth quarter and the year. While we expect the industry headwinds to continue in 2022, we have solidified our position this year as a leading supplier of personal protective equipment to the healthcare and survivability sectors while making investments to position Airbus Defense Group, Airbus Rubber Solutions, and Airbus Engineer products for strong performance coming out of the pandemic as the economy stabilizes. As it relates to ADG, the segment continued delivery of nitrile patient examination gloves for HHS. We continued execution under this contract, which provided a strong financial backdrop to offset raw material logistics and labor challenges faced by the other groups. By the end of Q1 2022, we expect to have executed successful and close to half a billion dollars of orders from the U.S. government, cementing our status as a trusted, large-scale supplier of protective equipment for frontline healthcare, defense, and law enforcement personnel, able to deliver high-quality products during the most challenging of supply chain dynamics. We continue to pursue more large-scale government healthcare and PPE contracts and other survivability equipment contracts as well as domestic and international contracts for supply of CBRN wearables and potential orders for new Husky 2G vehicles and related vehicle sensors and equipment in our record 1.5 billion plus pipeline. As I noted previously, our sales pipeline only includes active or imminent sales opportunities. and excludes the potential competition for the supply of gas masks to the U.S. military, which we are hopeful to compete for and win, as our industry-leading low-burden mask did in recent years in Canada and Australia. It also excludes large-scale rollout of our blast gauges, which are currently in field testing with the U.S. Army and in competition for the U.S. Special Operations Command. While in the short to mid-term, ADG is anticipated to continue to be our primary driver of profits, We are also expecting improvements in our rubber solutions and engineered product segments, though there is still potential for COVID-19-related weakness, including ongoing supply chain challenges further exasperated with the invasion of Ukraine. At ARS, we have seen increased top-line growth momentum, though margins were compressed by the rapid escalation of pandemic-related raw materials, freight, and labor challenges, while realizing a marked reduction of government subsidies designed to soften the financial impact of pandemic-related labor cost escalations. We are, however, seeing continued benefits of the sizable capital investments that we have made in ARS over the past few years. ARS recorded strong year-over-year increases in volumes, as well as progressive traction this quarter with increases across the vast majority of sectors due to increased momentum at most customers' operations. However, in the face of great challenges come important opportunities, and as such, the company continues to take advantage of its scale and global supply chain management expertise to onboard new customers seeking new suppliers in the current environment to drive volume and growth in the core markets. At Engineered Products, we had a transformative year despite the continued impact of record raw material increases, significant supply chain challenges, and electronic chip shortages as OEMs continued to shutter production, with new vehicle inventories at record lows while demand remains very strong. We have continued to focus on our three-part strategy to reduce operating expenses, produce more innovative higher margin products, and expanded to non-automotive sectors. In Q4, we continue to focus on our operational improvement plan, including managing variable costs and focusing on sustaining a stable workforce while weathering the volume volatility in the automotive sector, and specifically on our products for SUV, light truck, and minivan platforms. We continue to focus our commitment to drive efficiencies and best-in-class automation, including the installation of 22 new injection presses as part of a multi-year investment, in addition to the addition of to state-of-the-art automated work cells. The segment also continued its focus on diversification of its product lines into sectors adjacent to the automotive space. We remain committed to continuing to address the key challenges in the anti-vibration business, focusing on margin improvement, targeted cost management, and improving our pricing strategies with raw material indexing and investments in advanced manufacturing. Despite near-term supply chain challenges, our longer-term priority remains to drive improved performance at AP through a combination of discipline cost containment, client relationship expansion, new product development, sector diversification, and a more aggressive stance on the renegotiation of low margin contracts that do not allow for raw material escalation clauses that are very common in the automotive sector. Our ability in 2021 to pass on the exponential increases in raw material, freight logistics, and labor costs was quite limited given the inflexible nature of automotive contracts. Despite that, we made some progress last year and we continue to make progress this year with many of our customers agreeing on relief measures related to unprecedented raw material inflationary pressure. As an overall organization, our continued momentum has placed us in a strong financial position and has given us the ability to be aggressive with opportunities that present themselves. While we have a clear strategy to grow organically and have proven our ability to execute as such, historically we have also undertaken strategic M&A in order to make critical acquisitions, diversify our products, and customer base and penetrate new sectors. We continue to seek ways to leverage our balance sheet strength and accelerate our growth strategy through M&A as evidenced by our recent acquisition of ACE. As it relates to the outlook, our growth is not dependent on M&A. It is difficult to predict the continued normalization of the economy in the near term due to the impact of COVID-19, including global supply chain issues that have been further exasperated with the war in Ukraine. But as I stated previously, The outlook remains healthy over the medium term with industry estimates for approximately 4% top line growth over the next five years. We have obviously outperformed the industry over the past number of years with revenue and adjusted EBITDA compounded annual growth rates of 34% and 58% respectively since 2019. Our aim remains to continue expanding our market share while increasing our margins through a combination of product mix and operational efficiencies complemented with strategic and disciplined M&A. Our focus remains to cultivate strong internal processes that lead to organic growth and access of market growth while assessing both tuck-in and transformational acquisitions as we look to leverage our strong balance sheet to accelerate our strategic growth targets. With that, I will now pass over to Frank for the financial review. Frank?