AirBoss of America Corp.

Thank you for standing by. This is the conference operator. Welcome to the Air Boss of America Second Quarter 2025 Conference Call. As a reminder, all participants are in a 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, you may signal a conference operator by pressing star, then 0. I would now like to turn the conference over to Gren Shock, Chairman and Co-CEO. Please go ahead.

Thank you, operator. Good morning, everyone. Thank you for joining us for the Air Boss Second Quarter results conference call. I'm Gren Shock, and I'm the Chairman and Co-CEO of Air Boss. With me today are Chris Misakakis, our President and Co-CEO, Frank Antilli, our CFO, and Chris Figel, EVP and General Counsel. Our agenda today will start with a review of the operational highlights for the quarter, followed by discussion of our financial results before we open the conference lines to questions. Before we begin, I'd like to 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 and our annual reform and our MD&A, both of which are available on CDAR and on our corporate website. Also, we will discuss certain non-GAAP measures, including EBITDA. Reconciliation of these measures are available in our MD&A. Finally, please note there are reporting currencies in U.S. dollars. References today will be in U.S. dollars unless we indicate otherwise. With that, I'll turn the call over to Chris for our operational review.

Thank you, Gran. Good morning, everyone. Air Boss experienced positive traction in Q2 2025 compared to Q2 2024, mainly driven by significant increases in Air Boss manufactured products, defense products, business, partially offset by reduced volumes of Air Boss rubber solutions. Compared to Q2 2024, consolidated Q2 2025 results have shown a .4% increase in sales, a gross profit increase of $7.7 million, and an adjusted EBITDA improvement of just over $4 million. Despite the strong -to-date results, Air Boss has been forced to continue to navigate obstacles related to economic and geopolitical challenges, including market softness, tariffs, inflationary pressure, and the corresponding monetary policy, and the potential for further escalating and retaliatory tariffs. While maintaining focus on risk mitigation plans, including managing costs and targeting continuous improvement initiatives, the sheer uncertainty and volatility in the industrial markets we serve has been creating significant upheaval for industrial output in the U.S. On average, industrial production of durable goods in the U.S. in May and June was the lowest it has been in the last five years, while construction spending has been on a steady decline over the last 12 months. Many of the individual markets that we serve are being affected by these factors, which have in turn created significant short-term pressure on the custom compounding market, as is evident at Air Boss Rubber Solutions, as well as many of our competitors. The company expects further uncertainty to persist in the coming quarters, with volume recovery difficult to anticipate, as any recovery could be impacted by the imposition of further tariffs, duties, or other restrictions on trade. The company continues to evaluate and execute on contingency plans, and is carefully executing on all available options to deal with these challenges, including rebalancing production and sales activities between the U.S. and Canada, in order to minimize the impacts of the company and its customers. Despite the increased economic uncertainty, disruption of trade flows, and increased costs and strains on supply chains resulting from these challenges, opportunities may arise for the company to leverage existing U.S. capacity to grow revenues related to the near-shoring of overseas imports. As an example, the molding operations of Air Boss Manufacture Products has quoted more opportunities in the first six months of 2025 than we had quoted all of 2024. Although difficult to predict how many of those opportunities will turn into new contracts, it is certainly a validation of the Made in America strategy long considered critical to our molding operations in the U.S. As mentioned earlier, ARS had a pronounced softness in Q2 2025 compared to Q2 2024. The segment experienced both revenue contraction and reduced margins, driven by overall softness in most customer sectors, primarily caused by weaker demand and the shifting tariff situation. ARS remains committed to executing on a strategy to deliver strong results by focusing on specialized products, expanded production of a broader array of compounds, and enhanced flexibility in attracting and launching new business. As a segment, ARS continued to invest in research and development to support enhanced collaboration with customers. As an example, the new silicone product line that was launched in November 2024 has facilitated the complete insourcing of all silicone compound requirements within Air Boss, while also launching the first of what should be many new third-party customers utilizing Air Boss silicone materials. In terms of AMP, we experienced notable improvement in Q2 2025 compared to Q2 2024, primarily due to the Defense Products business continuing deliveries on previously announced contracts and additional overhead reductions carried out earlier in the prior year to help support profitable growth. Management at AMP also maintained its focus on operational improvements during Q2 2025 and continued to collaborate with key customers with a goal of leveraging opportunities aligned with its growth initiatives. The Defense Products business, despite its strong backlog this year, continues to collaborate closely with its suppliers and government partners to mitigate the previously announced delays to its bandolier program and expects revenue to shift to the right as challenges related to the supply chain get rectified. Further updates will be provided as more information becomes available. The rubber molded products operations were impacted by continued volume softness related to the original equipment manufacturers adjusting production schedules due to the evolving impact of tariffs in the automotive sector. This business continued its focus on managing costs and a commitment to drive efficiencies and -in-class automation, as well as diversification of its product lines into adjacent non-automotive sectors. Despite some of the supply chain upheaval precipitated by tariffs and counter tariffs, the long-term priorities of the company have remained the same. We continue to focus on our core competencies to drive growth during these challenging times. With a strong defense backlog, significant U.S. available capacity to benefit from reshoring, and the continuing market strength over rubber solutions technology, we expect to navigate these near-term challenges and position ourselves well for the future. Airbus will continue to focus on our long-term priorities while investing in core areas of the business to expand a solid foundation that will support long-term growth. I will now pass the call over to Frank for the financial review. Frank?

Thanks Chris and good morning everyone. As a reminder, all dollar amounts presented today are in U.S. dollars except for dividends per share which are in Canadian dollars. Percentage changes compare Q2 of 2025 to Q2 of 2024 unless otherwise noted. To be respectful of your time today, I will aim to be brief in my summary of our Q2 2025 results. Starting from the top line, Airbus's consolidated net sales for Q2 2025 were 98.6 million, an increase of .4% from the prior year. The increase is primarily due to higher volumes at manufactured products partially offset by lower sales at rubber solutions. Consolidated gross profit for Q2 2025 increased by 7.7 million to 16.2 million compared with Q2 2024. And consolidated adjusted EBITDA for Q2 2025 increased to 10.2 million from a prior year of 6.1 million. In both cases, the increase was driven by improved volume and mix at manufactured products along with an inventory write down in the comparative period, partially offset by volume softness and unfavorable mix at rubber solutions. Turning now to our individual segments, net sales at Airbus rubber solutions for Q2 2025 decreased by .7% to 50.9 million from 59 million in Q2 of 2024. Volume decreased by .9% with decreases in most sectors. Tolling volume was down .6% while non-tolling volume was down 15.5%. Gross profit at Airbus rubber solutions for Q2 2025 decreased to 6.6 million from 10.3 million in Q2 of 2024. Gross margin percentage decreased to 13% of net sales from .4% of net sales in Q2 2024. The decreases were due to unfavorable mix and lower volume driven by market softness and economic uncertainty, partially offset by managing controllable overhead costs and continuous improvement initiatives. Net sales at manufactured products for Q2 2025 increased by .2% to 55 million from 40.7 million in Q2 of 2024. The increase was mainly due to improved sales in the defense products business, partially offset by softness in the rubber molded products business. Gross profit at manufactured products for Q2 2025 increased to 9.6 million from negative 1.8 million in Q2 2024. Gross margin percentage increased to .4% of net sales from negative .4% of net sales in Q2 2024. This was primarily the result of a $6 million inventory write down for gowns and gloves in the comparative period. And improvements in the defense products business, operational cost improvements and reduced overhead costs, partially offset by unfavorable volume and product mix in the rubber molded products business. Turning again to the consolidated results, free cash flow for Q2 2025 was 11.2 million compared to 7.3 million at the end of Q2 2024. During Q2 2025, the company invested 1.8 million versus 3.9 million in Q2 2024. Capital expenditures were related to growth initiatives, cost savings and minor plant upgrades within ARS and AMP. By the end of Q2 2025, our net debt balance was 86.3 million versus 98.9 million at the end of 2024. We expect to fund the company's 2025 operating cash requirements, including required working capital investments, capital expenditures and scheduled debt repayments from cash on hand, cash flow from operations and committed borrowing capacity. The company has a credit facility that provides for a maximum borrowing of up to 125 million with a 25 million dollar accordion. As of June 30th, 2025, the total available borrowing capacity under the facility was 77.2 million with 39.7 million drawn. With that, I will now turn the call over to Chris.

Chris? Thank you, Frank. Operator, at this point, we can open the line up for Q&A.

Thank you. We will now begin the question and answer session. To join the question queue, you may press star, then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. The first question comes from Ahmed Abdullah from National Bank of Canada. Please go ahead.

Hi, thanks for taking my questions. On the AMP margin profile, you highlighted that MIX has played a role here. But can you give us a bit more color? Because the Q2 revenue splits look somewhat similar to Q1 between defense and auto, yet margins have jumped quite a bit. So how should we think about the margin profile for the segment going into the second half and into next year?

Yeah, Ahmed, thanks for your question. I mean, again, I think as a result of some of the deliveries of the new awards specifically in the defense products business and the concentration of those, specifically around Bando and Mallow, I think that's what's really made it accretive relative to the more historical profile from the GP perspective. However, going forward, as Chris had mentioned, there is some challenges with the supply chain related to the Bando, which could cause some softness there and could obviously bring it back to a more traditional trajectory from a gross margin profile.

Okay, that's helpful. So back half of the year should be a bit more normalized than this one time kind of timing. Is that how we should kind of understand it?

Yeah, more timing or scheduling really, because that's really the flow of sort of how the distribution of the programs going. But obviously, we'll keep people informed as we move forward and we learn more information.

Okay, and just on the increased activity in the rubber molded product side, I mean, traction seems to be brewing there despite the choppy backdrop. How are these new production awards you highlighted structured as it relates to tariffs? Are there some automatic like path through mechanisms that you can utilize or will you have to give up some margin if tariffs were to rise from current levels?

Yeah, I mean, we've done a pretty good job ever since the first Trump administration in streamlining our supply chain in the US to utilize as many US raw materials as possible. And so these current these new awards that we've received at the rubber molding business under AMP have been awards for US production and utilizing US raw materials. So the latest material cost that we've had, we've been able to apply the most recent costs and we have been in conversations with the automotive customers about their willingness to offset tariffs. But I'd say in our case, we've done a good job to keep most or all the raw materials localized anyway.

Okay, that's helpful. Thanks for the color. I'll pass the line.

The next question comes from Tim James from TD Talon. Please go ahead.

Thanks. Good morning, everyone. My first question, very general, I think, looking at Canada's defense opportunities. Are you seeing any specific signs at this point of and it may be early days, but are you seeing any specific signs of potential defense work as a result of Canada's recent plans to significantly accelerate defense spending? Are there any actual kind of discussions with Canadian defense officials at

this point? As you can imagine, Tim, we are having ongoing conversations with Canadian defense officials. We at least once a week, we're meeting with the staff from the Ministry of Defense and we're talking about multiple opportunities. So there's a lot more conversation going on now about opportunities that we could participate in. There hasn't been multiple requests for code come out yet, but that's always kind of the next step. But we're certainly seeing a lot more conversation around the needs of the Canadian Armed Forces and how Airbus can participate in that. And there are ongoing discussions at least weekly.

Okay,

that's

helpful. My second question, and forgive me if you covered this earlier, I actually missed a brief part of the call, but can you talk about sort of in rubber solutions, just kind of mix influences either in the quarter and as you think about it going forward, I'm thinking about kind of, you know, color compounding sort of product mix, just sort of directionally as you might. Move forward and I know you've been looking at doing more sort of customized if I can call it that compounding that drives higher margins. Where do you stand on that? Are you seeing progress? You know, what's the outlook?

Yeah, yeah, actually, we are seeing progress. Of course, you know, the more customized solutions, the more specialized compounds also tend to be lower volume. So in terms of driving the mix, it takes a little bit longer for that to happen. But, you know, we first launched our first color mixing line in 2019. And just a few years ago, we bought Aesop last summer, which is has a very strong share of the color compounding market in the US. And they've been relatively stable. And of course, on those more specialty compounds, the margin profile is higher. And in November, as you know, we launched our first silicone line. Which is was the next sort of step in our specialized compounding strategy. And since then, we have in sourced all of our own silicone compound requirements, all the all the silicone molding that was going on at AMP used to be utilizing outside, outside raw material, outside compounding for the silicone. So we've in sourced all of that silicone and we have multiple customers that we are in trials with to to take more of that work on. And in this quarter, in the last quarter, I should say, we launched our first third party customer. And there's multiple other ones that are in the lab that are being that are being ramped up. So that's our next step. We do have more thoughts beyond beyond silicone. But as you see, the color and the silicone and other specialty compounds ramp up, you'll see that margin profile update upwards. Having said that, and I mentioned it in the early remarks is, you know, the the custom, the industrial output in the US has been has been relatively low. And so the the open capacity has necessitated us and our competitors to get a bit more aggressive on pricing to defend. And so that some of that improvement in the margin profile, as you can see in this last quarter, has dropped a little bit because of because of the slow market that we're in. So it's all kind of puts in calls. But in if you normalize all that out and we saw that coming into this year, year after year improvements in the margin profile at ARS, if we when we get through all this, you know, tariff and economic and geopolitical concerns that we have for the overall industrial market in the US, I think we'll be back onto that trajectory of year over year improvements in margin profile and in the silicone line that we've launched is sort of the next driver of that.

Okay, that's helpful. Actually, I'm going to sneak one more question in if I could. You cite In terms of manufactured products, one of the pressures that the business is experiencing relates to increased vehicle inventories. I just want to confirm is that is that a reference to your customers are indicating they're they've got sort of higher inventories and therefore aren't needing as much product from you. Is that the gist of that?

Yeah, the the big auto suppliers, they build to inventory. And when the inventory levels get to a level that they're concerned that the sales won't support them, they then slow down their production output. So we have found in the past year, it's been fairly flat to slow and depending on which customer like if you look at Stellantis, for example, they had a very down year last year. And so once inventory levels get to a certain point, they will either take weeks of production out or shifts out or just slow down the production line to kind of regulate that. So we're always looking at the vehicle inventories, the sales figures, and that kind of gives us an early indication of where production schedules are going to land.

Right. Okay, great. Thank you very much.

The next question comes from Kevin Chang from CIBC. Please go ahead.

Good morning. Thanks. Thanks for taking my question. Just on the banjo here. Thanks for the comments you made in your prepared remarks. But I guess since I guess four months ago when you announced the delay, just wondering what you know, I guess what progress you made is still kind of at a standstill now in terms of in terms of the in terms of the delays you're seeing or do you have visibility on executing against this program and the targets you put out in terms of delivery by the end of 2026?

Yeah, when we made that first announcement, there's a critical raw material ingredient that's produced in Europe that gets exported into the US and it's in very high demand and low supply globally. So it's a tricky raw material to get in the first place. And, you know, with all the trade concerns back and forth, it's been affected by that. When we first made the announcement on the delays, we were actually able to find some more of the material, be able to continue shipping. And we are now in a similar position where it's now in tight supply again. So we have multiple avenues to procure more of this raw material. So we don't, it's actually not at a standstill exactly. We are working with our customers and our suppliers and we're finding opportunities to reacquire this raw material. And so we're working nonstop on doing that. We expect things to slow down and speed up. It's going to be very lumpy as the availability of this raw material kind of comes up and down. And so we continue to just reiterate to everyone that although we still expect to complete this contract, it's going to be a little lumpier than we expected as we navigate these global supply chain issues on that particular one raw material that's so critical.

That's helpful. I guess with the US and EU having come to a trade agreement, does that, at least from your perspective, does that help the procurement of this or is it primarily I guess a capacity issue on the production of this input? And I guess to the extent that as you're procuring this product, which seems to be in short supply, are there mitigating factors, I'm assuming that may be inflationary relative to the cost that you assumed when you put this bid forward originally?

Not really. I mean, although it's a very critical raw material, when you look at the overall cost of the product, the percentage impact of an increase in price on that material has some impact, but not really that material to us. So it's more so just the availability of that material. And it's definitely a capacity issue because it's in tight demand globally. However, I think with the initial concerns between the European Union and the US, there was some unwillingness, let's say, to direct more of that raw material here, given that it was in such high demand all around the world. So I think now that there is a trade deal, I think it does help us in a way from a strategic standpoint, but it's still in short supply and we're not sure whether contracts have been awarded to pick up that supply. We are working on a US supplier for this material, although it's in tight demand in the US as well. So I'm relatively optimistic that we're going to find a workaround for that, but it's going to be a lot lumpier than we expected.

Okay. I mean, just last question for me, it sounds like you're looking at your production options, just given the trade uncertainty out there. Is that weighing on your cost profile at all in terms of shifting production between Canada and the US, or as you think about trying to mitigate potential tariffs, is that burdening your cost structure at all, or maybe could burden your cost structure when you decide to make a specific decision on where you produce some of your goods in order to mitigate the tariff situation?

Well, it certainly did impact our cost structure in Q1 and Q2, because all of our US customers that receive material exported from Canada, we had to requalify all those materials out of our plants in the Carolinas. And so we had to bear much of those costs for trials, formulation adjustments, and all the things that we need to do to make sure that the material works the same way off of our lines in the US as they do in Canada. So we certainly had some costs there. Of course, all the material that we make in Canada is covered under USMCA. So from that perspective, as long as the MCA stays intact, we shouldn't see any additional tariff costs, although there is concern out of the US related to buying from Canada and then overnight having some massive new tariff applied to it. So I think a lot of that uncertainty is creating a little bit of concern. Our plants in the Carolinas are quite efficient. So I don't think it's a matter of costing that much more to produce down there. It's more so about the fact that we're not 100% sure where this is all going to end up in terms of protecting the USMCA. So if the USMCA is protected, we should be able to continue on business as normal. I think we think that once all these tariff concerns are kind of brought to a conclusion, we think the industrial output in the US will settle down because what we're seeing is people are building up inventory of their imports prior to deadlines and then working away that inventory. And as you know, Kevin, manufacturing is not designed for puts and starts constantly. And so it's creating a lot of havoc in the industrial output and with our customers. But as all those things get settled, we think it's going to settle out and we should be able to get back to business as normal. And whatever transfer we have to make to the US, we don't expect a major drop in margins because of that specific thing.

That's helpful. Thank you very much.

This concludes the question and answer session. I would like to turn the conference back over to Chris Takakis for closing remarks.

Thank you, operator, and thank you everyone for attending our call today. We appreciate your support and we're always available for any follow-up questions. Thank you again. Have a great day.

This brings to a close today's conference call. You may disconnect your Thank you for participating and have a pleasant day.