AirBoss of America Corp.

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 Bitsakakis, 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, and 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 tolling 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, 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,