Newmarket, ON – AirBoss of America Corp. (TSX: BOS) (the “Company” or “AirBoss”) today announced record third quarter performance as it moves forward into the remainder of the year with strong momentum. The Company will host a conference call and webcast to discuss the results November 11 at 9 a.m. ET, the details of which are further below.

($US except where otherwise noted)

Recent Highlights

  • Second consecutive quarter of record EBITDA1, up 522.8% versus the third quarter of 2019 to $37.3 million;
  • Increased diluted EPS and adjusted diluted EPS1 by 571.4% and 487.5% respectively, versus the third quarter of 2019;
  • Grew free cash flow1 by $39.5 million to $38.5 million (or $1.64 per share) for the nine-month period ended September 30, 2020;
  • Reduced net debt1 to TTM EBITDA1 from 1.85 times at December 31, 2019 to 0.25 times at September 30, 2020, providing the Company with enhanced flexibility to act on both organic and inorganic growth opportunities;
  • Awarded and commenced delivery against a contract from the U.S. Department for Health and Human Services (“HHS”) worth up to $121.0 million for the manufacture and sale of 50,000 FlexAir™ PAPR systems (“PAPR’s”), 3,000,000 filters, and related accessories;
  • Completed acquisition of 100% ownership of AirBoss Defense Group (“ADG”) effective October 26, 2020 by purchasing 45% minority interest held by Critical Solutions Holdings, LLC;
  • Announced a two-year extension to the existing Husky Long-Term Contract with Army Contracting Command Warren, with $35.6 million of funding set aside for anticipated volumes of Husky 2G support equipment to be procured over the extended period of performance; and
  • Announced that AirBoss Defense Group was awarded an additional $22.0 million in contracts across its survivability portfolio for multiple parties in North America and internationally.

“AirBoss again achieved record results during the third quarter, driven by our successful completion of the FEMA contract for our respirator systems, beginning delivery on the larger HHS contract for the same systems, and execution on PPE contracts for both military and health care markets,” said Chris Bitsakakis, President and COO of AirBoss of America. “The impressive performance of ADG during the pandemic has resulted in a significantly improved financial position, and we took advantage of this in October to complete the acquisition of the minority interest in ADG that we did not already own. It also offset COVID-related softness in our other segments, though we have experienced sustained recoveries in those areas during the third quarter that approached levels of over 85% of pre-COVID volumes.

It is unclear what impact COVID-19 will have on the economy and our customer base in the near term. However, we believe our diversification positions us well either for a hopeful return to a safe normalcy or to continue supplying front line workers with PPE if the pandemic continues or grows worse. Over the long term, our focus remains unchanged and we will continue to pursue opportunities to supply PPE for front line health care workers and work with regional, provincial, state and federal governments as an ongoing part of future strategic pandemic planning, target traditional defense contracts, and grow and diversify our rubber solutions and engineered products segments.”

Three-months ended September 30 Nine-months ended September 30
In thousands of US dollars, except share data
(unaudited) 2020 2019 2020 2019
Financial results:
Net sales 162,745 77,173 369,392 242,364
Net income 21,160 1,525 36,330 7,762
Profit attributable to owners of the Company 11,646 1,525 17,801 7,762
Adjusted Profit attributable to owners of the Company1 11,681 1,834 20,164 8,160
Net income per share (US$)
– Basic US$0.50 US$0.07 US$0.76 US$0.33
– Diluted US$0.47 US$0.07 US$0.74 US$0.33
Adjusted Net income per share1 (US$)
       – Basic US$0.50 US$0.08 US$0.86 US$0.35
       – Diluted US$0.47 US$0.08 US$0.83 US$0.35
EBITDA1 37,335 5,995 70,400 23,249
Adjusted EBITDA1 37,370 6,304 72,763 23,067
Net cash provided by operating activities 18,137 12,555 47,869 12,033
Dividends declared per share (CAD$) CAD$0.07 CAD$0.07 CAD$0.21 CAD$0.21
Capital additions 4,544 5,635 10,561 13,585
Financial position: September 30, 2020 December 31, 2019
Total assets 357,359 249,664
Term loan and other debt2 76,953 74,144
Total equity 195,916 125,979
Outstanding shares (#) * 26,908,802 23,392,442
* at November 10, 2020

Financial Results

AirBoss increased consolidated net sales for the three-month period ended September 30, 2020 by 110.9% to $162,745 compared with the same period in 2019 due largely to PAPR sales under the FEMA and HHS contracts, supported by the completion of the merger between the AirBoss Defense business and CSI on January 1, 2020 (the “ADG transaction”). This increase was partially offset by softness in the Rubber Solutions segment, primarily due to the impact of the COVID-19 pandemic. Consolidated net sales for the nine-month period ended September 30, 2020 increased by 52.4% to $369,392 compared with the same period in 2019 due largely to the FEMA and HHS contracts, supported by the completion of the ADG transaction. This increase was partially offset by softness in the Rubber Solutions and Engineered Products segments, primarily due to the impact of the COVID-19 pandemic.

Consolidated gross profit for the three-month period ended September 30, 2020, increased by $35,128 to $45,713, compared with the same period in 2019, driven by higher volume from ADG and Engineered Products segments partially offset by lower volumes in the Rubber Solutions segment. For the nine-month period ended September 30, 2020, consolidated gross profit increased by $60,159 to $95,667, compared with the same period in 2019, driven by higher volume from ADG and partially offset by lower volumes in the Rubber Solutions and Engineered Products segments. Gross profit as a percentage of net sales for the three-month period ended September 30, 2020 increased to 28.1% compared with 13.7% for the same period in 2019, and to 25.9% for the nine-month period ended September 30, 2020 compared with 14.7% for the same period in 2019. These increases were primarily as a result of strong ADG performance including the large ADG contract awards, CSI gross profit stemming from the ADG transaction that were not included in the comparable period in 2019, supported by continued management of overhead costs in both Rubber Solutions and Engineered Products segments and government-directed wage subsidies to support businesses impacted by COVID-19.

Adjusted EBITDA for the three- and nine-month periods ended September 30, 2020 increased by 492.8% and 215.4%, respectively, compared to the same periods in 2019, due primarily to the increases in gross profit noted above as partially offset by an increase in operating expenses related to incorporating the business of CSI.

Profit attributable to shareholders of the Company, excluding non-controlling interest, for the three-month period ended September 30, 2020 was $11,646, or $0.47 per diluted share (2019: $1,525, or $0.07 per diluted share). Profit attributable to shareholders of the Company, excluding non-controlling interest, for the nine-month period ended September 30, 2020 was $17,801, or $0.74 per diluted share (2019: $7,762, or $0.33 per diluted share). The increases were primarily attributable to increased profit contribution from ADG. Adjusted Net income per diluted share, excluding certain items, was $0.47 and $0.83 for the three and nine-month periods ending September 30, 2020 (2019: $0.08 and $0.35 for the respective comparator periods).

Financial Position

With $43.1 million in cash and cash equivalents, $60 million in undrawn availability under its credit facilities and a net debt to TTM EBITDA ratio of 0.25x, AirBoss enters the remainder of 2020 in strong financial condition.

Dividend

The Board of Directors of the Company has approved a quarterly dividend of C$0.07 per common share, to be paid on January 15, 2021 to shareholders of record at December 31, 2020.

Segment Results

In the Rubber Solutions segment, net sales in the quarter decreased by 10.8% to $29,757 and by 16.7% to $87,362 year-to-date from the comparable periods in 2019. In both cases, volume was down across the majority of sectors as a result of either full or partial shutdown of customers’ operations due to the COVID-19 pandemic earlier this year though there has been a continuing ramp up of most customers’ operations. Tolling volume was up 8.7% in the quarter and down 15.8% year-to-date from the comparable periods in 2019. Non-tolling volume decreased by 8.2% for the quarter and 10.7% year-to-date compared to the same periods in 2019. Gross profit in the Rubber Solutions segment decreased by 1.2% to $4,858 for the quarter and by 8.3% to $14,679 year-to-date, from the comparable periods in 2019. For both periods, the decreases in gross profit were primarily a result of decreased volumes, partially offset by managing overhead costs and supported by government-directed wage subsidies.

At Engineered Products, net sales in the quarter increased by 19.3% to $37,828 and decreased by 14.6% to $81,407 year-to-date from the comparable periods in 2019. The increase was due to a pivot to support the manufacturing of certain defense products including PAPR’s, while automotive product sales were consistent with the comparable period in 2019 despite the shut-down within the automotive industry in Q2 2020 related to COVID-19. Compared to the second quarter of 2020, volume and sales improved progressively month-over-month as the automotive sector showed signs of recovery, especially in the light truck sector. The decrease year-to-date was a result of the COVID-19 pandemic, which resulted in the partial shutdown during Q2 2020 of the Auburn Hills, Michigan plant. Gross profit in the Engineered Products segment increased by 96% to $3,746 for the quarter and decreased by 4.5% to $4,969 year to date from the comparable periods in 2019. For the quarter, the increase was primarily a result of higher volumes and the additional defense product mix supported by operational cost containment and managing overhead costs. The decrease year-to-date was primarily a result of lower volumes discussed above partially offset by operational cost containment and managing overhead costs.

In the AirBoss Defense Group segment, net sales in the quarter increased by 545.6% to $108,430 and by 295.7% to $225,509 year-to-date from the comparable periods in 2019. In both cases, the increase was primarily the result of the large contract from FEMA (completed in late July 2020) and the commencement of the large contract from HHS, both to provide PAPR’s, filters and related accessories as part of the U.S. government’s response to the COVID-19 pandemic. In addition, there were higher sales of masks and boots related to other defense customers in the quarter and higher sales for other products in the defense portfolio and CSI sales stemming from the ADG transaction that were not included in the comparable period in 2019. Gross profit at AirBoss Defense Group increased by 887.7% to $37,109 for the quarter and by 432.0% to $76,019 year-to-date, from the comparable periods in 2019. In both cases the increase was primarily due to higher volume associated with new business awards, while the Canadian operations were supported by government-directed wage subsidies, as well as CSI gross profit stemming from the ADG transaction that were not included in the comparable period in 2019, year to date.

Overview

The third quarter has advanced the Company’s financial position despite the continued impact of the COVID-19 pandemic, now in its second wave. The second wave continues to create challenges globally, yet AirBoss has been able to take advantage of opportunities supporting its strong trajectory for the quarter. The Company’s strong third quarter results were driven by the continued delivery and completion of a large personal protective equipment (“PPE”) award from the U.S. Federal Emergency Management Agency (“FEMA”), which was completed in July. This strong performance was further augmented by the commencement of deliveries under the previously announced PPE contract for HHS which provided a strong financial backdrop to offset the COVID-19 related impact on the Rubber Solutions and Engineered Products segments

As many customers, including the “Big Three” automakers, tire makers and related suppliers, began to ramp up operations towards the end of June, AirBoss saw a meaningful recovery in its operations that carried through the third quarter. Both the Rubber Solutions and Engineered Products segments saw sustained recoveries that approached levels of over 85% of pre-COVID volumes. As stated previously, the timing for a full recovery in volumes will be subject, at least in part, to a stable and sustained re-opening of businesses across North America, especially in the U.S. which currently is seeing a rise in cases, and which remains a key market for the Company.

In the case of the Engineered Products segment, the Company continued to focus on supporting the volume increase realized in the automotive sector while managing variable costs, focused on sustaining a stable hourly workforce. Management also continued to sustain the production of certain molded defense products at the Auburn Hills, MI facility, as well as FlexAir™ PAPR systems (“PAPR’s”), which supported the return to work for some staff as well as continued execution against existing defense contracts. These measures helped sustain volume and offset the impact of volatility in demand from the anti-noise, vibration and harshness business, which saw increased volumes during the quarter compared to the prior quarter. The Engineered Products segment did see a significant recovery in volumes, especially in late August and September and ahead of industry levels given AirBoss’ focus on SUV, light truck and mini-van platforms. AirBoss also continues to push ahead with best in class automation with the installation of a new robotic work cell which is in full production as well as the diversification of its product lines into sectors adjacent to the automotive space.

In addition to the US$121 million order for PAPR’s from HHS secured after the second quarter, ADG has continued to build momentum as it was awarded a US$35.6 Million Contract Extension for Husky 2G Protected Payload and Route Clearance Payloads and an additional $22 million in awards across ADG’s survivability portfolio. ADG and its predecessor companies have been producing PAPR’s since 1985 and are continuing to deliver on the HHS contract. Securing this second large contract provided a further validation for the creation of ADG, which married AirBoss’ class-leading CBRN protective solutions with Critical Solutions International Inc.’s (“CSI”) marketing strength and strong relationships with governments and militaries around the world. AirBoss’ focus on supply chain management and agile manufacturing capabilities that supported the successful delivery of the FEMA contract is expected to pay dividends as deliveries of the HHS contract will continue to flow through the balance of the year and into the first quarter of 2021. These further awards will help augment the traction and momentum and is expected to help offset possible further COVID-19 related weakness which may still impact the Rubber Solutions and Engineered Products businesses during the balance of 2020.

Management believes that the future sourcing of personal protective equipment for first responders and medical professionals will continue to be become a necessity for front line workers in response to the COVID-19 pandemic. As a part of overall future emergency preparedness planning, management expects a more unified and streamlined approach aimed at reducing complexity, shortening acquisition times and building strategic stockpiles, compared to the fragmented and complex distributor relationship arrangements seen previously. This is expected to be a future driver for the business and ADG is modifying its business development approach accordingly. Beyond this, AirBoss continues to target traditional defense contracts, potentially valued at hundreds of millions of dollars globally over the next several years, for its broader portfolio of survivability solutions. This includes opportunities for its new low-burden mask as well as next-generation products like the Blast Gauge™ blast overpressure solution, Bandolier and Rollover Detection Warning System (RDWS).

The Company remains in a sound financial position. The strong performance of ADG is facilitating accelerated payback of the US$60 million Vendor TakeBack Note, with US$25 million paid back as of September 30, 2020 and approximately US$15 million of that paid back in the third quarter. This is supporting increased balance sheet strength and will provide management enhanced flexibility to execute opportunistically on both organic and inorganic growth initiatives, particularly as potential acquisition targets may lack the balance sheet strength to weather a prolonged downturn. AirBoss believes it is well positioned to further leverage its significant recent investments in innovation, capacity expansion, and innovative solutions as industry conditions improve.

Despite the continued headwinds associated with COVID-19, the Company’s longer-term priorities remain intact and include:

  • Growing the core Rubber Solutions segment by positioning it as a specialty supplier of choice in the consolidating North American market, with a growing focus on building defensible leadership positions in selected compounds;
  • Capitalizing on ADG’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 before, management remains dedicated to the creation of long-term value for all stakeholders through a combination of strategic initiatives that both drive organic growth and support possible transactions.

Contact: Chris Bitsakakis, President and COO or Gren Schoch, Chairman and CEO at 905-751-1188.

Conference Call Details

A conference call to discuss the quarterly results is scheduled for 9:00 a.m. ET on Wednesday, November 11, 2020. Please go to http://www.gowebcasting.com/10814 or dial in to the following numbers: 1-800-319-4610 or 416-915-3239, pass code: 55506. Please connect approximately 10 minutes prior to the beginning of the call to ensure participation.

AirBoss of America Corp. is a group of complementary businesses supplying custom compounded rubber, survivability solutions and anti-vibration components to a diverse group of customers globally. AirBoss Rubber Solutions is a top-tier North American custom rubber compounder with 450 million turn pounds of annual capacity. AirBoss Defense Group manufactures and supplies a growing array of Chemical, Biological, Radioactive, Nuclear and Explosive (“CBRN-E”) protective solutions and is a leading provider of personal protective equipment to governments, militaries and frontline healthcare workers both in the U.S. and internationally. AirBoss Engineered Products is a supplier of innovative anti-vibration solutions to the North American automotive market. The Company’s shares trade on the TSX under the symbol BOS. Visit www.airbossofamerica.com or www.adg.com for more information.

Note (1): Non – IFRS Financial Measures: EBITDA, Adjusted EBITDA, Adjusted profit attributable to owners of the Company, Adjusted net income per share, Free cash flow and Net debt are directly derived from the consolidated financial statements but do not have a standardized meaning prescribed by IFRS and are not necessarily comparable to similar measure presented by other issuers. The Company discloses these terms for use in financial measurements made by interested parties and investors to monitor the ability of the Company to generate cash from operations for debt service, to finance working capital and capital expenditures and to pay dividends. These terms are not a measure of performance under IFRS and should not be considered in isolation or as a substitute for net income under IFRS. Reconciliations of net income to EBITDA and Adjusted EBITDA, net income to Adjusted profit attributable to owners of the Company, Adjusted net income per share, Free cash flow and Net debt, are presented below.

Reconciliations of Non-IFRS Measures ($US except where otherwise noted)

Three-months ended September 30 Nine-months ended September 30
(unaudited) (unaudited)
In thousands of US dollars 2020 2019 2020 2019
EBITDA:
Profit 21,160 1,525 36,330 7,762
Finance costs 723 901 2,694 2,981
Depreciation, amortization and impairment 8,387 3,369 16,635 10,024
Income tax expense 7,065 200 14,741 2,482
EBITDA 37,335 5,995 70,400 23,249
ADG transaction fees 35 309 2,363 977
Insurance provision (1,159)
Adjusted EBITDA 37,370 6,304 72,763 23,067
Three-months ended September 30 Nine-months ended September 30
(unaudited) (unaudited)
In thousands of US dollars 2020 2019 2020 2019
Adjusted profit attributable to owners of the Company:
Profit attributable to owners of the Company 11,646 1,525 17,801 7,762
ADG transaction fees 35 309 2,363 977
Insurance provision (579)
Adjusted profit attributable to owners of the Company 11,681 1,834 20,164 8,160
Basic weighted average number of shares outstanding 23,401 23,392 23,398 23,392
Diluted weighted average number of shares outstanding 24,600 23,449 24,193 23,442
Adjusted net income per share (in US dollars):
Basic
0.50 0.08 0.86 0.35
Diluted 0.47 0.08 0.83 0.35
In thousands of US dollars (unaudited) September 30, 2020 December 31, 2019
Net debt:
Loans and borrowings – current 10,198 5,358
Loans and borrowings – non-current 66,755 68,786
Leases included in loans and borrowings (13,881) (14,542)
Cash and cash equivalents (43,091) (121)
Net debt 19,981 59,481
Three-months ended September 30 Nine-months ended September 30
(unaudited) (unaudited)
In thousands of US dollars 2020 2019 2020 2019
Free cash flow:
Net cash provided by (used in) operating activities 18,137 12,555 47,869 12,033
Acquisition of property, plant and equipment (4,065) (5,010) (9,174) (11,597)
Acquisition of intangible assets (107) (505) (716) (1,438)
Proceeds from government grant 500
Free cash flow 13,965 7,040 38,479 (1,002)
Basic weighted average number of shares outstanding 23,401 23,392 23,398 23,392
Diluted weighted average number of shares outstanding 24,600 23,449 24,193 23,442
Free cash flow per share (in US dollars):
Basic
0.60 0.30 1.64 (0.04)
Diluted 0.57 0.30 1.59 (0.04)

Note (2): Term loan and other debt as at September 30, 2020 and December 31, 2019 include lease liabilities of $13,881 and $14,542, respectively.

AirBoss Forward-Looking Information Disclaimer

Certain statements contained or incorporated by reference herein, including those that express management’s expectations or estimates of future developments or AirBoss’ future performance, constitute “forward-looking information” or “forward-looking statements” within the meaning of applicable securities laws, and can generally be identified by words such as “will”, “may”, “could” “expects”, “believes”, “anticipates”, “forecasts”, “plans”, “intends” or similar expressions. These statements are not historical facts but instead represent management’s expectations, estimates and projections regarding future events and performance.

Statements containing forward-looking information are necessarily based upon a number of opinions, estimates and assumptions that, while considered reasonable by management at the time the statements are made, are inherently subject to significant business, economic and competitive risks, uncertainties and contingencies. AirBoss cautions that such forward-looking information involves known and unknown contingencies, uncertainties and other risks that may cause AirBoss’ actual financial results, performance or achievements to be materially different from its estimated future results, performance or achievements expressed or implied by the forward-looking information. Numerous factors could cause actual results to differ materially from those in the forward-looking information, including without limitation: impact of general economic conditions; dependence on key customers; cyclical trends in the tire and automotive, construction, mining and retail industries; sufficient availability of raw materials at economical costs; weather conditions affecting raw materials, production and sales; AirBoss’ ability to maintain existing customers or develop new customers in light of increased competition; AirBoss’ ability to successfully integrate acquisitions of other businesses and/or companies or to realize on the anticipated benefits thereof; changes in accounting policies and methods, including uncertainties associated with critical accounting assumptions and estimates; changes in the value of the Canadian dollar relative to the US dollar; changes in tax laws and potential litigation; ability to obtain financing on acceptable terms; environmental damage and non-compliance with environmental laws and regulations; impact of global health situations; potential product liability and warranty claims and equipment malfunction. COVID-19 could also negatively impact the Company’s operations and financial results in future periods. There is increased uncertainty associated with future operating assumptions and expectations as compared to prior periods. As such, it is not possible to estimate the impacts COVID-19 will have on the Company’s financial position or results of operations in future periods. While the direct impacts of COVID-19 are not determinable at this time, the Company has undrawn credit facility as at September 30, 2020 that can provide financing up to $60,000. This list is not exhaustive of the factors that may affect any of AirBoss’ forward-looking information.

All of the forward-looking information in this press release is expressly qualified by these cautionary statements. Investors are cautioned not to put undue reliance on forward-looking information. All subsequent written and oral forward-looking information attributable to AirBoss or persons acting on its behalf are expressly qualified in their entirety by this notice. Forward-looking information contained herein is made as of the date of this press release and, whether as a result of new information, future events or otherwise, AirBoss disclaims any intent or obligation to update publicly this forward-looking information except as required by applicable laws. Risks and uncertainties about AirBoss’ business are more fully discussed under the heading “Risk Factors” in our most recent Annual Information Form and are otherwise disclosed in our filings with securities regulatory authorities which are available on SEDAR at www.sedar.com.