AirBoss of America Corp.
(BOS-T) C$7.22
Q1/23 First Look Event
Yesterday after market close, AirBoss reported Q1/23 Adjusted EBITDA of $10.3 million compared to our forecast/consensus of $10.1 million/$10.3 million. Adjusted diluted EPS of $0.06 compared to our forecast/consensus of $0.06/$0.09.
Impact: NEUTRAL
We view the higher-than-forecast FCF, and ADG and AEP gross margins positively, and offsetting the lower-than-forecast ARS gross margin and increasing net debt to TTM Adjusted EBITDA ratio. We do not believe that investors should be surprised by the sequential increase in leverage given the anticipated y/y decline in Adjusted EBITDA, and we are encouraged to see a small sequential decline in net debt. Our preliminary review of the Q1/23 results continues to suggest that EBITDA growth and margin expansion will resume in 2023 while balance sheet risk declines.
Rubber Solutions (ARS): Revenue decreased 5.3% y/y to $49.4 million (TD: $48.6 million). Tolling volume declined 81% y/y and non-tolling volume declined 9%. The softness in Q4/22 from customers focusing on reducing inventory levels carried over into Q1/23. Modest demand improvements were noted towards the latter part of the quarter. Gross margin declined 10 bps y/y (increased 210 bps sequentially) to 15.3%, and was slightly below our 15.8% forecast.
Engineered Products (AEP): Revenue increased 37% y/y to $40.0 million (TD: $30.9 million) due to improved volume across several automotive product lines. Gross profit margin increased to 14.0% from -13.9% in Q1/22, above our 11.8% forecast. The improvement was due to product mix, pricing, volume, and cost saving initiatives.
AirBoss Defense (ADG): Revenue decreased 56% y/y to $27.6 million (TD: $31.8 million). The decrease was due to the completion of the nitrile glove contract in Q1/22. Gross margin decreased 1,230 bps y/y to 31.6%, but was well above our forecast of 21.5% and the 15.3% reported in Q4/22.
FCF: FCF was $5.2 million, slightly above our forecast for of $2.9 million. The difference was due to lower-than-forecast capex, partially offset by lower-than- forecast cash earnings and higher-than-forecast A/R.
Balance Sheet: Net debt to TTM Adjusted EBITDA increased sequentially to 2.99x from 2.43x, and compares to its credit agreement covenant ratio of 3.75x.