AirBoss sees lower sales, higher adjusted EBITDA in Q2

NEWMARKET, Ontario—AirBoss of America Corp. saw net sales drop by about 16.4 percent in the second quarter of this year, a function of lower sales in the manufactured products segment and decreased volume in the rubber solutions segment.

Consolidated net sales for North America's second-largest custom mixer came in at about $95.4 million for the second quarter, down from $114.1 million in Q2 2023.

"Despite the continued economic slowdown occurring in North America, which impacted both AirBoss Rubber Solutions and AirBoss Manufactured Products, the company remained focused on operational execution, aggressive deleveraging and cost management, as we drove our strategy to broaden and grow ARS while refocusing on core product lines at AMP," said Chris Bitsakakis, president and co-CEO of AirBoss, during an Aug. 14 investor call. "Although both segments continued to experience softness in the past quarter, we are encouraged by the recently announced Bandolier awards that have begun shipping in the third quarter of 2024 as well as increased momentum in the CBRN markets, which are expected to drive improved performance at AMP in the second half of 2024 and into 2025 and beyond."

The contract for the Bandolier multi-purpose energetic system, manufactured under AMP for a NATO country, is valued at about $45 million, according to Bitsakakis.

AirBoss declared a dividend of about 3 cents per share for Q2 of this year, to be paid Oct. 15 to shareholders.

Adjusted EBITDA for Q2 2024 came in at $6.1 million, a 17.5-percent increase compared to an EBITDA of $5.2 million in Q2 2023.

Through the first six months of this year, AirBoss net sales decreased to $198.9 million, a 14-percent drop against the first six months of 2023.

"Management continues to be focused on prioritizing investments and growth that will drive long-term shareholder value," said Gren Schoch, chairman and co-CEO of AirBoss. "We also continued to work on executing the previously announced strategic transition, and have retained TD Securities Inc. as our financial adviser to assist in our review of various alternatives to create value for shareholders."

AirBoss of America, founded in 1989, is a developer, manufacturer and provider of survivability solutions, advanced custom rubber compounds and finished rubber products that are designed for challenging environments.

Labor stoppages caused by last year's UAW strike, delays in government sourcing and drawdowns in customer inventory at the end of 2023 made for a challenging past year for AirBoss of America, according to Bitsakakis.

As a result, North America's second-largest custom compounder restructured the firm into ARS and AMP, eliminating AirBoss Defense Group and AirBoss Engineered Products as standalone business units.

The ARS segment comprises the former rubber solutions segment and the rubber compounding operations at Acton Vale, Quebec (previously included in ADG).

The AMP division now comprises the former AEP and ADG (other than the rubber compounding operations in Acton Vale, Quebec).

The restructuring took effect Dec. 31, 2023, with financial results for the full-year 2023; Q4 2023; and Q1-Q2 of this year reported under the new corporate structure.

As such, net sales in Q2 2024 decreased in ARS by 13.1 percent to $59 million, down from $67.9 million in Q2 2023.

For the quarter, volume decreased by 20.2 percent across nearly all sectors, "with continued signs of softness across many customers' operations."

"Despite strong performance during the earlier part of 2024, there was pronounced softness experienced at the end of Q2 2024 as sales were impacted by customers focused on reducing inventory levels," Bitsakakis told investors. "The segment remained committed to executing on its strategy to deliver strong results with specialized products, expanded production of a broader array of compounds (white and color), and enhanced flexibility in attracting and fulfilling new business through identified synergies and margin expansion.

"As a segment, ARS continued to invest in research and development to support enhanced collaboration with customers."

At AMP, net sales decreased 14.7 percent to $40.7 million, down from $52.6 million in Q2 2023.

Like ARS, the decrease was realized across "most product lines."

"AMP experienced continued softness in Q2 2024 in both the rubber molded products and defense businesses," Bitsakakis said. "The rubber molded products operations were impacted by continued volume softness related to the original equipment manufacturers shuttering production in the current quarter to rebalance vehicle inventory levels."

The AirBoss president noted that the rubber molded products business had lower volumes in SUV and light truck platforms, "driven by economic headwinds and increased vehicle inventories which impacted production schedules across certain OEMs and Tier 1 suppliers in the quarter."

"In addition, the defense business continued to work with its key customers with a goal of leveraging opportunities aligned with its growth initiatives, subject to timing as delays in the conversion of these opportunities continued through Q2 2024, including its most recent Bandolier award," Bitsakakis said.

AirBoss said it will look to grow the ARS division by focusing on custom compounding.

The company produces approximately 500 million turn pounds of rubber per year and has more than 2,000 proprietary compounds.

"We will focus on innovation in custom rubber compounding while aiming to expand market share through organic and inorganic means, while striving to achieve enhanced diversification by a broadening of product breadth through technological advancements and investments in specialty compound niches," Bitsakakis said,

The growth philosophy at AMP will center on diversifying and expanding its portfolio of rubber molded products, while narrowing the portfolio defense products.

"We are undertaking a strategic review of all product lines currently manufactured and sold ... in (AMP) while targeting additional acquisition opportunities," Bitsakakis said. "AirBoss continues to focus on these long-term priorities while investing in core areas of the business to expand a solid foundation that will support long-term growth."