AirBoss of America Corp.
(BOS-T) C$36.00
Update for HHS Contract Timing, Q3 Pre-Release Event
After market close on October 18, AirBoss provided a corporate update in which it pre-announced Q3/21 revenue and Adjusted EBITDA, maintained full year 2021 guidance, and announced that it has received NIOSH approval for its new AirBoss 100 Half Mask Respirator.
Impact: SLIGHTLY NEGATIVE
We are maintaining our C$47.00 target and BUY recommendation. Our annual EBITDA forecasts are relatively unchanged, reflecting the maintenance of 2021 revenue and Adjusted EBITDA guidance and the slightly lower (than our previous forecast) implied revenue run-rate exiting 2021 from sources other than the large nitrile glove contract which biases 2022 estimates lower by an immaterial amount, in our view.
Due to a government lockdown in Malaysia and U.S. port congestion, a portion of deliveries of nitrile gloves were delayed under the company's $288 million contract with the U.S. Department for Health and Human Services (HHS). These factors have resulted in approximately $116 million of revenue moving from Q3 to Q4/21. In addition, Q3 Engineered Products segment results (approximately 15% of 2021 forecast revenue) are expected to be impacted by raw material supply challenges, chip shortages, and elevated freight costs. Consolidated Q3 revenue is now expected to be approximately $112 million and Adjusted EBITDA is expected to be approximately $13 million.
Supply chain delays are not entirely surprising in the current environment, and the significance of the nitrile glove contract that requires supply from Malaysia leads to a particularly large impact relative to consolidated results. Shipping of the balance of the nitrile glove contract has commenced and we view the risk to Q4 revenue as being significantly reduced relative to Q3. The last formal guidance was for the $288-million nitrile glove contract to be almost entirely delivered in H2/21. We have adjusted our Q3/21 nitrile glove contract revenue assumption to approximately $20 million relative to $160 million previously.
TD Investment Conclusion
We believe that AirBoss' strong balance sheet, dividend, and growing exposure to global demand for personal protective equipment make it an appealing investment. We believe that its Defense segment is increasingly well-positioned to drive strong earnings, while its legacy Rubber Solutions and Engineered Products segments regain momentum.