AirBoss 2022 results drop because of fall in nitrile glove needs

NEWMARKET, Ontario—Top officials at AirBoss of America Corp. said that while the firm's 2022 financial results didn't measure up to the record performance of 2021, they found reason to be optimistic from the fourth-quarter numbers.

"The AirBoss team exited 2022 with momentum in some important areas, which is a testament to our strategic efforts to diversify our business," Gren Schoch, AirBoss chairman and CEO, said in a news release announcing the 2022 financial results.

Chris Bitsakakis, president and chief operating officer, said the 2022 numbers were matched up "against a fairly challenging set of financial comparables from 2021, and though the results didn't match the prior-year's record numbers, we're very pleased we've made meaningful advancements across many parts of our business."

For the fourth quarter of 2022, net sales dropped 52.8 percent from the prior-year quarter to $117.4 million, with a drop in its AirBoss Defense Group partially offset by increases from the Rubber Solutions and Engineered Products units. Consolidated gross profit for the quarter fell 51.9 percent to $24.8 million, again with the lower profits coming from ADG.

Full-year results saw sales decline 18.7 percent to $477.2 million, with consolidated gross profit off 78.5 percent to $24.1 million. That put gross profit as a percentage of net sales at 5.1 percent, compared with 23.2 percent in 2021.

AirBoss said the decrease was driven by a $57 million non-cash write-down at ADG related to nitrile glove inventory and the delivery of nitrile gloves to the U.S. Department for Health and Human Services in 2021. The Newmarket-based firm did add that the Rubber Solutions had increased business across most of its customer sectors, and Engineered Products had significant improvement as well.

Adjusted EBITDA dropped about 48 percent to $13.9 million for the quarter and fell 43.6 percent to $45.3 million on the year.

"On the heels of a record year financial performance in corporate growth in 2021, our focus in 2022 was one of execution and integration from our newly expanded operating platform," Bitsakakis said in a March 9 earnings call with financial analysts. "Many of the challenges we faced throughout the business in 2021, including raw material sourcing and cost inflation, continued into 2022, and these conditions made the work we do to pursue production and cost efficiencies throughout each of our businesses that much more important to our success."

With the drop in nitrile examination gloves to HHS, ADG saw sales plummet 88.7 percent to $19.8 million in the fourth quarter of 2022 and 59.6 percent for the full year to $133.2 million. Gross profit for the business dropped 93.9 percent on the quarter to $2.9 million, while on the year the margin dropped $127.6 million to a loss of nearly $11 million for the year.

AirBoss Defense Group did announce a series of new contracts that "demonstrate the diverse array of technologies it provides to its customers," Bitsakakis said.

The most recent was in late December, when ADG said it would be supporting deliveries of 'Made in America' COVID testing kits to the U.S. Defense Logistics Agencies.

"Our newly strengthened U.S.-based manufacturing capabilities supported our success during this competitive bid process," the AirBoss president said. "The first half of contract deliveries are expected to be completed by the end of (the second quarter) this year, and we'll be monitoring the status of the remaining half of the deliveries against this agreement after that."

Earlier in 2022's fourth quarter, ADG said it was awarded $40 million in contracts to manufacture and supply a total of 13 Husky 2G vehicles to two separate customers.

Net sales for the AirBoss Rubber Solutions (ARS) segment grew 9.8 percent to $57.8 million for the fourth quarter and 37.7 percent to $236.1 million for all of 2023. The increase for the fourth quarter was mainly serving the conveyor belt, OTR/retread, industrial and specialty products sectors, AirBoss said in its results.

Volume for the year was up 3.3 percent, with gains in most end markets despite what the firm called residual softness due to economic headwinds. Tolling volume dropped 46 percent in the fourth quarter and 11.9 percent for the full year. Non-tolling volume was down 4.5 percent for the quarter but increased by 6.6 for the year.

Gross profits grew 17.8 percent on the quarter to $6.92 million and 58.8 percent on the year to $33.1 million.

Bitsakakis said on the analyst call that, for AirBoss, 2021 was a challenging year, but investments made to improve automation and efficiency, and expand the array of compounds and colors it can supply led to record profits for ARS in 2022.

"One of the net results of the tough market conditions in 2021 and last year was that the ARS team had to double down on plans to diversify supply lines, broaden its production base and capture new market share," he said. "I'm really pleased to say that the team within ARS successfully adapted and evolved as their business and the markets changed and were well-positioned to carry these capabilities into the coming year."

Longer-term priorities for the unit remain to deliver growth by positioning the custom mixing business as a leading specialty supplier in North America.

Bitsakakis also said the integration of Ace Elastomer, purchased in mid-2021, benefited AirBoss greatly.

"Ace has added significant value to our AirBoss Rubber Solutions business segment, advancing us into a lead role in the color and specialty rubber compounding space," he said. "Our rubber compounding capabilities are now stronger. We've expanded our geographic reach into key markets in the U.S., and the new skills and talent we added to our team have been a significant benefit to us."

The fourth quarter found the AirBoss Engineered Products unit boosting sales to $46.7 million, with a gross profit of $14.9 million, after posting a loss of $2.25 million in the 2021 final quarter. On the year, sales rose 13.6 percent to $132.5 million, with a gross profit of $2.02 million, compared to a loss of $1.2 million in 2021.

AirBoss said the unit had improved volumes across several automotive product lines, including muffler hangers, bushings and spring insulators, along with improved arrangements with key suppliers and customers.

Bitsakakis told analysts the business faced multiple challenges in 2021 and 2022, such as acute problems from rapidly climbing raw material prices, supply chain disruptions and issues tied to the global shortages of computer chips needed by automotive OEMs. He said management is hopeful they have taken the proper steps to boost the division's financial performance.

"The team within AEP accelerated efforts to reduce operating expenses, developed more innovative higher margin products, and diversified its customer reach into new non-automotive industries," he said. "The changes made within AEP have improved the positioning and resilience of this business.

"As we exited 2022, we were clear in our commitment to working with AEPs key partners and customers to resume a more stable financial footing for its continued operation."

In December 2022, a statement of claim was filed in the Ontario Superior Court of Justice against AirBoss and several named officers. AirBoss said in its financial news release that the applicants were asking for an order to leave to proceed under Securities Act (Ontario), certifying the action as a class proceeding and appointing them as representative plaintiffs.

According to AirBoss, "the applicants seek, among other relief, a declaration that the company made misrepresentations contrary to the Securities Act (Ontario) during a period extending from Nov. 9, 2021 to Sept. 6, 2022, as well as unspecified damages."

The company has not made a provision for contingent losses in its consolidated financial statements.

As for ongoing business, AirBoss said despite continued headwinds related to economic and geopolitical issues, it will continue to follow its longer-term priorities, which include:

• Growing the Rubber Solutions segment by positioning it as a specialty supplier of choice in the consolidating North American market, with a focus on building leadership positions in selected compounds;
• Capitalizing on AirBoss Defense Group's enhanced scale and capabilities to pursue an array of growth and value-creation opportunities in the broader survivability solutions segment serving both defense and first responder markets;
• Driving improved performance from Engineered Products through a combination of disciplined cost containment, client relationship expansion, new product development and sector diversification; and
• Targeting additional acquisition opportunities across the business with a focus on adding new compounds and products, technical capabilities and geographic reach into selected North American and international markets.

"As it relates to our outlook, ... we are in a solid position across each of our businesses from a product, production and execution perspective," Bitsakakis said. "Our aim is to continue leveraging our core expertise to expand our market share, support our business investments with strong financial discipline, and maintaining our focus on cost-effective strategic M&A."