AirBoss sees sales rise slightly, earnings fall in second quarter

NEWMARKET, Ontario—AirBoss of America Corp. saw its share of challenges in the second quarter of 2023, as work force issues, logistical hurdles, raw material availability and global conflicts continue to impact the industry landscape.

But the company remains confident moving forward, leaning on its awarded and future contracts (AirBoss Molded Glove and the Bandolier line charge system) to offset these economic headwinds, as well as a general rebound in the rubber solutions and defense group segments.

Overall, AirBoss saw net sales of $114.1 million for the second quarter of 2023, a 3.2-percent increase over the $110.5 million registered in the second quarter of 2022. Net sales in Q1 2023 came in at $117.1 million.

The year-over-year increase was due to higher sales and volume in AirBoss Engineered Products, though AirBoss Rubber Solutions partially offset the increase with lower volume.

"AirBoss experienced stable consolidated sales levels and volume recovery in certain segments as compared to last year, however an unfavorable product mix and elevated operating expenses had a negative impact on profitability for Q2 2023," said Chris Bitsakakis, president and co-CEO of AirBoss, during an Aug. 10 conference call. "From a market demand perspective, some of the improvements we saw toward the latter part of Q1 2023 continued through this quarter, but customer volumes remained below those experienced in 2022, especially within (AirBoss) Rubber Solutions and AirBoss Defense Group."

Overall, AirBoss Group EBITDA dropped more than 50 percent to $5.2 million in Q2 2023, against an EBITDA of $10.5 million in the second quarter of 2022.

EBITDA is used to measure a company's ability to generate cash from operations for debt service, to finance working capital and capital expenditures, potential acquisitions and to pay dividends.

"The decrease in EBITDA (from Q2 2022) arises primarily from higher operating expenses," Bitsakakis said.

Year-to-date, AirBoss saw net sales of $231.1 million, a 9.4-percent decrease against the $255 million the company registered in net sales in the first six months of 2022. EBITDA for the first half also decreased nearly 50 percent to $15.5 million.

AirBoss' debt decreased by about $14.6 million in the first half of this year to $128.3 million, down from $143.6 million at the end of 2022.

"During Q2 2023, AirBoss remained focused on operational execution, growth initiatives and key investments despite continued economic headwinds," Bitsakakis said. "The company navigated ongoing economic impacts being experienced to varying degrees in each segment. Labor, logistics challenges and the availability of raw materials continue to create challenges that each segment is working through to support stability moving forward.

"Recovery in volumes in 2023 remains subject to the ongoing management of stable and sustained operations of businesses globally, which remain complex and volatile."

For the second quarter of 2023, AirBoss Engineered Products sales rose 40.3 percent to $37.7 million over the second quarter of last year, due to a favorable mix and high volumes in SUV, minivan and light truck platforms—and despite headwinds impacting production schedules across OEMs and Tier 1 suppliers.

"The momentum generated in the prior quarter continued through this quarter, despite ongoing challenges of raw material availability, supply chain challenges and production volatility by the original equipment manufacturers," Bitsakakis said.

Revenues for AirBoss Rubber Solutions fell 8.5 percent—to $57.8 million from $63.2 million—for the quarter, against the second quarter of 2022.

Volume in ARS dropped nearly 19 percent against the second quarter of 2022.

"There were decreases across a vast majority of sectors due to decreased momentum at most customers' operations, although there was some traction from the softness experienced in the prior quarter," Bitsakakis said. "The rubber solutions segment saw modest improvements in demand during the quarter, and while it was a marked improvement over the prior quarter, it was still below the same quarter in the prior year."

Despite the economic pressures, Bitsakakis said rubber solutions "continues to execute on its strategy of delivering strong results with specialty products and fulfilling new business through identified synergies and margin expansion."

He added that the company will look to expand the portfolio of Ace Elastomers and its specialized products within AirBoss Rubber Solutions.

AirBoss Defense Group experienced a "challenging quarter," Bitsakakis said, as sales ticked up slightly to $26 million for this year's second quarter. A modest increase in volume for molded defense products assisted in this slight net sales increase, AirBoss said.

However, ADG was down about 40 percent year-to-date—$54.6 million from $89.8 million—against the first six months of 2022. This is "primarily due to the completion of the large HHS nitrile examination glove order," AirBoss said.

"ADG experienced residual softness in its industrial and defense businesses, making for a challenging quarter," Bitsakakis said. "As a result of this and the delay in converting opportunities, ADG has taken a series of cost-cutting measures across the organization, including a reduction in its work force."

In addition, ADG continues to leverage opportunities in its pipeline, as evidenced by the recent awards of the AirBoss Molded Gloves and Bandolier contracts.

The AMG contract is worth about $18.5 million over three years, while the Bandolier contract is worth about $3.8 million over 12 months.

However, delayed conversion of a pipeline opportunity in another contract remains, as the previously announced awards for Husky 2G vehicles has been delayed further due to "ongoing global challenges."

AirBoss now expects these orders to be executed in early 2024.

Moving forward, AirBoss will look to grow its core ARS segment though "defensible leadership positions in selected compounds."

Within ADG, the company will look to capitalize on "broader survivability solutions" serving both the defense and first responder markets.

And the group hopes to continue the growth seen in AEP through a combination of "disciplined cost containment, client relationship expansion, new product development and sector diversification," Bitsakakis said.

In addition, AirBoss will continue to examine acquisition opportunities in both the North American and international markets, the company said on the conference call.

As the company jostled its leadership positions in late July, promoting Bitsakakis to co-CEO of AirBoss Group, AirBoss also announced a series of cost-cutting avenues implemented across ADG's operations, including a reduction in its work force.

"These changes are intended to streamline the business segment's operations following a series of acquisitions and reduced business activity from continued delays in expected contract awards," the company said in a July 27 statement.

The moves will save about $5 million annually for ADG once they are implemented.

"Over the past two and a half years, ADG has undergone substantial change," Bitsakakis said. "These changes came from acquisitions we had made within the business and from significant swings in our underlying business activity."

The co-CEO said AirBoss is taking these steps to "closely review our operating practices."

"We've taken an important step to ... structure ADG to return to profitability, as we await new contract awards," Bitsakakis said. "We expect substantial cost efficiencies going forward, while our ability to pursue and capture growth opportunities remains fully intact."