AirBoss of America Corp.

This conference has been recorded. Cette conférence est enregistrée. All participants, please stand by. Your conference is ready to begin. Good morning, ladies and gentlemen. Welcome to the second quarter 2023 Financial Results Call. I would now like to turn the meeting over to Chris Bitsakakis, President and co-CEO. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and thank you for joining us for the Airbus second quarter 2023 results conference call. My name is Chris Pitsakakis, president and co-CEO. For our agenda today, I will start with a review of the operational highlights for the quarter and year, followed by Frankie Antilli, our CFO, who will discuss our financial results before we open the conference line to questions. Before we begin, I will remind listeners that our remarks today contain 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&A, both of which are available on CDAR Plus or on our corporate website. Also, we will discuss certain non-GAAP measures, including EBITDA. Reconciliations of these measures are available in our MD&A. And finally, please note that our reporting currency is in U.S. dollars. References today will be in U.S. dollars unless we indicate otherwise. I'll start today by outlining our Q2 results and providing an overview of what we are seeing within our business segments as we move into the second half of 2023. In aggregate, our three business segments continue to focus on operational execution, growth initiatives, and key investments throughout our business despite the current economic headwinds. Our consolidated sales levels and gross profit were higher than the second quarter of 2022, but a combination of elevated operating expenses and interest costs had a negative impact on our profitability for Q2 this year. From a demand perspective, some of the improvements we saw exiting Q1 continued through to Q2, but customer volumes remained below those experienced in 2022 within our Airbus rubber solutions and Airbus defense group. Even as we saw a reduction in our profit as compared to Q2 of last year, we have posted strong free cash flow generation for the quarter and year-to-date in 2023, which has allowed us to continue investing in the business while also reducing our net debt levels, which have declined by over $14.5 million to date in 2023. Turning now to our business segments. Looking specifically at ARS, we were active in 2022 making investments to improve our efficiency and expand the suite of compounds we supply to our customers, and ARS posted record performance in 2022. For Q2 of 2023, ARS saw improvements in demand over the prior quarter of this year, but volumes are still below Q2 of 2022 with decreased volumes largely due to decreased demand from total customers. And while we posted an 8.5% year-over-year decline in sales within ARS in Q2, we were pleased to see that our investments in production automation allowed us to successfully offset reduced sales volumes with improved margin contributions from this business segment. And as I mentioned earlier, the improvement from Q1 to Q2 of this year in volume was about 12%. ARS continues to apply its research and development expertise toward new collaborations with its customers and new products to add to its current range of solutions. And our long-term priority for ARS remains focused on delivering growth through our position as a leading specialty supplier in North America, one with a valuable portfolio of specialty compounds combined with strong production capabilities. For the balance of this year, ARS remains focused on replacing the volume gap from tolling customers with more advanced and more consistent non-tolling volumes as we await a rebound in tolling volume. Looking at engineered products, or AEP, this business segment continues to build on the momentum recently established with key suppliers and customers to deliver strong performance in Q2. Economic headwinds continue to impact the production schedules across certain OEMs and Tier 1 suppliers, but despite these influences, we saw higher year-over-year volumes in our SUV and light truck platforms, which supported solid net sales growth and gross profit contributions from AEP in the second quarter. We continue to see opportunities to increase the contributions AEP can make to our financial results through 2023 and beyond through our focus on expanding our client relationships and 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 solutions, we made the strategic decision to implement a series of measures to reduce ADG's costs, streamline operations, and reduce ADG's break-even 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. The cost saving measures are expected to result in approximately $5 million 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 its current and future awards. As recent evidence of the capabilities of ADG's product portfolio, in early July we announced new contracts for Airbus, Molded Glove, and also our Bandelier line chart system. These new contracts have an aggregate value of approximately $22 million and demonstrate the diversity of ADG's lineup of survivability solutions. Regarding M&A, we actively monitor our main markets for acquisitions that have the potential to build our portfolio of products or compounds, advance our technical capabilities, and expand our geographic presence. Looking forward, 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.

Thanks, Chris, and good morning, everyone. As a reminder, our dollar amounts presented today are in U.S. dollars except for dividends per share, which are in Canadian dollars. Percentage changes compare Q2 2023 to Q2 of 2022, unless otherwise noted. Starting from the top line, consolidated Q2 net sales were $114 million, which were 3.2% higher than Q2 of last year, with a strong increase in Airbus engineered products, more than offsetting a decline in sales within Airbus rubber solutions during the quarter. ADG's net sales were relatively flat to Q2 of 2022. Consolidated gross profit increased to $17.6 million, which was 18.8% higher than our gross profit in Q2 of 2022. As a percentage of sales, our gross margin contribution was 15.4%, which was 200 basis points above our gross margin contributions in Q2 of last year. Improved volumes within AEP were a significant contributor to our gross margins. as well as a strong gross margin percentage within ARS despite lower sales levels compared to last year. These gains were partially offset by lower gross margin within ADG primarily due to an unfavorable product mix. Q2 adjusted EBITDA decreased to $5.2 million impacted primarily by higher general and administrative costs as a percentage of sales. Quarterly loss was $2.6 million or negative $0.10 per diluted share compared to $2.5 million or $0.09 per diluted share in Q2 of 2022. Turning now to our individual segments, ADG's net sales increased 0.6% to $26 million, with the increase primarily due to increased deliveries of certain molded defense products. Growth profit at ADG decreased to $4.2 million, with the decrease driven by an unfavorable product mix and higher overhead costs. Net sales at Airbus Rubber Solutions decreased 8.5% to $57.8 million, driven by reduced volumes across many of our end-use markets. Gross profit at ARS decreased to 1.7% to $9.6 million due to volume reductions and product mix. Q2 2023 gross profit as a percentage of sales was 16.7%, which was an improvement over the 15.5% margin posted in Q2 of 2022. Net sales in the engineered product segment increased by 40.3% to 37.7 million due to higher volumes and favorable mix in the SUV and light truck platforms. Gross profit at AEP increased by 8.5 million over Q2 of 22 to 3.7 million. And this was due to improved arrangements with our key suppliers and customers, volume improvements for certain vehicle platforms and product mix along with our ongoing cost management efforts. Free cash flow for Q2 was an inflow of 14.5 million, which supported our continued investment in capital assets and further reductions of our debt. CapEx was 2.4 million in Q2 of 2023, and we reduced our net debt balance by 10.6 million. We continue to ensure we maintain sufficient liquidity to fund the growth of our business. Our revolving credit facility availability is $250 million with an accordion of $75 million, and approximately $116 million was drawn at the end of Q2. As of the end of the quarter, we had net debt of $95 million for a net leverage ratio of 3.11 times trailing 12-month adjusted EBITDA. With that, I will now turn the call over to Chris.